1.1
The initial investment includes the cost of the new equipment, transportation costs, and the
increase in working capital. It also includes the cost of removing the old equipment and the
proceeds from selling the old equipment.
Initial investment = Cost of new equipment + Transportation costs + Increase in working
capital - Proceeds from selling old equipment + Cost of removing old equipment + tax on
sale of old equipment
Initial investment = R2 500 000 + R100 000 + R250 000 - R500 000 + R50 000 + 37 800
Initial investment = R2 437 800
1.2
The annual operating cash flows include the increase in EBITDA, depreciation, and the tax.
Annual operating cash flows = Increase in EBITDA – Depreciation – tax + depreciation
Depreciation = (R2 500 000 - R0) / 5 = R500 000
Tax = (EBITDA – Depreciation) x Tax rate = (848700 - R500 000) x 27% = R94 149
Annual operating cash flows = R848 700 - R500 000 – R94 149 + R500 000
Annual operating cash flows = R754 551
1. 3
The terminal cash flows include the proceeds from selling the new equipment, the cost of
removing the new equipment, and the cost of removing the old equipment and working
capital
Terminal cash flows = Proceeds from selling new equipment - Cost of removing new
equipment - Cost of removing old equipment – tax on sell + working capital
Tax = (200 000- 110 000) x 27% = R24 300
The initial investment includes the cost of the new equipment, transportation costs, and the
increase in working capital. It also includes the cost of removing the old equipment and the
proceeds from selling the old equipment.
Initial investment = Cost of new equipment + Transportation costs + Increase in working
capital - Proceeds from selling old equipment + Cost of removing old equipment + tax on
sale of old equipment
Initial investment = R2 500 000 + R100 000 + R250 000 - R500 000 + R50 000 + 37 800
Initial investment = R2 437 800
1.2
The annual operating cash flows include the increase in EBITDA, depreciation, and the tax.
Annual operating cash flows = Increase in EBITDA – Depreciation – tax + depreciation
Depreciation = (R2 500 000 - R0) / 5 = R500 000
Tax = (EBITDA – Depreciation) x Tax rate = (848700 - R500 000) x 27% = R94 149
Annual operating cash flows = R848 700 - R500 000 – R94 149 + R500 000
Annual operating cash flows = R754 551
1. 3
The terminal cash flows include the proceeds from selling the new equipment, the cost of
removing the new equipment, and the cost of removing the old equipment and working
capital
Terminal cash flows = Proceeds from selling new equipment - Cost of removing new
equipment - Cost of removing old equipment – tax on sell + working capital
Tax = (200 000- 110 000) x 27% = R24 300
