FIN3701 ASSIGNMENT 1 2022

FIN3701 ASSIGNMENT 1 2022




Unique number: 613992

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Question 1
Answer
Working 1: Initial Outlay
Description Amount
Cost of new equipment 8 500 000
Proceeds from Disposal of current machine (379 200)
Increase in Net working capital 475 000
Initial Outlay 8 595 800


Calculation 1
After tax proceeds: Current machine.
 410 000 – 300 000 = 110 000
 Tax charge = 0.28 x 110 000 = 30 800
 After tax proceeds = 410 000 – 30 800 = R379 200
Working 2: Operating Cash flows
Description Year 1 Year 2 Year 3 Year 4
Revenue (70 000 x 85) 5 950 000 5 950 000 5 950 000 5 950 000
Savings 180 000 180 000 180 000 180 000
6 130 000 6 130 000 6 130 000 6 130 000
Less: Depreciation (3 300 000) (1 600 000) (1 600 000) (1 700 000)
Less: Variable costs (70 (2 660 000) (2 660 000) (2 660 000) (2 660 000)
000 x 38)
EBIT 170 000 1 870 000 1 870 000 1 770 000
Less: Tax @28% (47 600) (523 600) (523 600) (495 600)
NOPAT 122 400 1 346 400 1 346 400 1 274 400
Add: Depreciation 3 300 000 1 600 000 1 600 000 1 700 000
(calculation 2)
Operating Cash Flows 3 422 400 2 946 400 2 946 400 2 974 400



Calculation 2: Depreciation
Depreciation: New machine
40
Year 1 = 100 x 8 500 000 = 3 400 000
20
Year 2 = 100 x 8 500 000 = 1 700 000
20
Year 3 = 100 x 8 500 000 = 1 700 000
20
Year 4 = 100 x 8 500 000 = 1 700 000