Prospect Limited is considering investing in some new plant. The plant would cost

£1 000 000 to implement. It would last five years and it would then be sold for

£50 000. The relevant profit and loss accounts for each year during the life of the project are as follows:

Additional information:
1 All sales are made and all purchases are obtained on credit terms.
2 Outstanding trade debtors and trade creditors at the end of each year are expected to be as follows:

3 Expenses would all be paid in cash during each year in question.
4 Taxation would be paid on 1 January following each year end.
5 Half the plant would be paid for in cash on 1 April Year 0, and the remaining half (also in cash) on 1 January Year 1. The resale value of £50 000 will be received in cash on 31 March Year 6.
Required:
Calculate the annual net cash flow arising from the purchase of this new plant.

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Year to 31 March 1 2 3 4 5 000 000 000 000 000 Sales 2000 2400 2800 2900 2000 Less: Cost of goods sold Opening stock 200 300 550 350 Purchases 1600 1790 2220 1960 1110 1600 1990 2520 2510 1460 Less: Closing stock 200 300 550 350 50 1400 1690 1970 2160 1410 Gross profit 600 710 830 740 590 Less: Expenses 210 220 240 250 300 Depreciation 190 190 190 190 190 400 410 430 440 490 Net profit 200 300 400 300 100 Taxation 40 70 100 100 10 Retained profits 160 230 300 200 90