The logistics company is planning a new investment. This investment is expected to be an expenditure of 70000 $ while this expenditure is expected to be paid just before the running of this investment. The revenues per year are expected to be 57000$ .But the variable cost which is the cost of goods sold and is paid for the investment's operation per year is expected to be at the level of 21500. The investment analysis propose that the fixed costs comprise several selling , general and administrative expenses ( without depreciation ) and for every year of the investment the investment's operation per year these are 4500. It is expected to provide profits for 4 years.

Depreciation is calculated on a straight line basis, the residual value is expected to be insignificant. Acceptable payback period for the investment is 2,5 years.

a) Calculate the gross profit and the profit or loss ( after taxes) per year if the tax rate for the company is 30%.Evaluate the investment with simple payback evaluation technique ( assuming three decimal points)Should the company run this investment?

b) If the tax rate is 10% calculate the gross profit and the profit or loss ( after taxes) per year .Evaluate the invest me t with simple payback evaluation technique. Should the company run this investment? Discuss the difference due to taxation.

c)f For the cases a and b calculate the final profit or loss ( the sum) for the four years of useful life if company runs this investment as well as the sum of free cash flows for the same periods using payback period. Discuss the results of the sum of free cash flows in regard to the final profit?

Answer rating: 100% (QA)

Answer to Question 1 The expected payback period is 25 years However at a 30 tax rate the company is having a Gross profit of 31000 and Profit after t... View the full answer