Due to the project, current assets (mostly inventory) will grow by $1.5m initially (at t = 0),
Question:
Due to the project, current assets (mostly inventory) will grow by $1.5m initially (at t = 0), and then by $0.8m at the end of the first year (t=1).
Current liabilities (mostly trade creditors) will increase by $0.6m at the end of the first year (t=1).
At the end of the project, the net working capital accumulated due to the project can be sold for the same price that it was bought.
2. The shop building was purchased 40 years ago for $10m and is currently being rented to another company for $0.2m per year. The shop building is fully depreciated for tax purposes. The tenant will need to vacate the building if this project is undertaken. After the project has ended, a new tenant can easily be found.
3. Market research costing $3,000 was undertaken six months ago. This relates directly to the project.
4. The shop fittings will have a book value of $1m at the end of the project for tax purposes. However, the shop fittings are expected to fetch $1.6 million when they are sold at t=2.
Assumption
All cash flows occur at the start or end of the year as appropriate, not in the middle or throughout the year.
Required:
A. Calculate the Net Income at Time 2
B. Calculate the after-tax disposal cash flow (CapEx) at Time 2
C. Calculate the change in Net Working capital at Time 2
Expert Answer:
To calculate the net income at Time 2 we need to consider the revenues costs depreciation and taxes involved A Net Income at Time 2 Revenue at Time 2 ... View the full answer
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1285190907
8th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
