Question No 1

Total Initial Outlay

Cost of Machine 1,300,000
Installation Cost 91,000
Transportation Cost 39,000
Training Cost 13,000
Total Cost of Machine 1,443,000
Working Cost of Capital 8,000
Sales Proceed from old machine -84,029
Tax on Gain 7,002
Total Cost of Assets 1,373,973

Detail 1 2 3 4 5 6 7
Sales (Units) 20,000 22,000 24,200 26,620 29,282 32,210 35,431
Sales Price 70 70 70 70 70 70 70
Total Sale 1,400,000 1,540,000 1,694,000 1,863,400 2,049,740 2,254,714 2,480,185
Cash CGS (22%) -308,000 -338,800 -372,680 -409,948 -450,943 -496,037 -545,641
Gross Profit 1,092,000 1,201,200 1,321,320 1,453,452 1,598,797 1,758,677 1,934,545
Cash Operating Expense (11%) -154,000 -169,400 -186,340 -204,974 -225,471 -248,019 -272,820
Profit Before Tax 938,000 1,031,800 1,134,980 1,248,478 1,373,326 1,510,658 1,661,724
Depreciation on New Machine -288,600 -461,760 -277,056 -166,234 -166,234 -83,117 0
Depreciation on Old Machine 70,025
Incremental Depreciation -218,576 -461,760 -277,056 -166,234 -166,234 -83,117 0
Profit Before Tax 719,425 570,040 857,924 1,082,244 1,207,092 1,427,542 1,661,724
Tax @ 50% -359,712 -285,020 -428,962 -541,122 -603,546 -713,771 -830,862
Profit after tax 359,712 285,020 428,962 541,122 603,546 713,771 830,862
Add Back Depreciation 218,576 461,760 277,056 166,234 166,234 83,117 0
Incremental Salvage Value -50,000 25,000
Tax Gain/(Saving) 25,000 -12,500
Working Cost of Capital 8,000
Net Cash Flow 578,288 746,780 681,018 707,356 769,780 796,888 851,362

Old Machine Working

Cost of Old Machine 900,000
Installation Cost 18,000
Transportation Cost 27,000
Total Cost 945,000
Depreciation of 1st Year 314,969
Depreciation of 2nd Year 420,053
Depreciation of 3rd Year 139,955

Book Value 70,025

Sales Price 84,029
Gain on Sales 14,005

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