Assuming an interest rate of 10 per cent, what is the net present value of the net of tax cash flows in question 33.12 for 19X2, 19X3, 19X4 and 19X35?

Question 33.12

Assume the company in question 33.11 pays tax at 40 per cent, on 30 September each year, nine months after the end of its financial period. The company receives 25 per cent writing-down allowances on the cost of equipment and will receive the allowances for 19X2 expenditure to be offset against the tax payable on the profits for 19X2. 100 per cent capital allowances were received on the old equipment sold in 19X3 and the receipts from the sale of the old equipment must, therefore, be treated as taxable income of 19X3. Show the impact on the cash flows of these tax items.

Question 33.11

The following project costs have been estimated relating to the upgrading of some equipment; all the costs are being incurred solely because of the project:

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19X2 January 1 One year's rent on premises paid 6,000 31 Equipment purchased 40,000 March 31 Installation of equipment completed and paid 12,000 December 31 Costs incurred in commissioning equipment 18,000 19X3 January 1 One year's rent on premises paid March 31 Additional commissioning costs paid May 31 Training costs paid June 30 Additional working capital provided December 31 Cash proceeds from sale of old equipment 6,000 10,000 4,000 14,000 10,000 Ignoring tax, prepare a statement showing the outlays of cash on the project in 19X2 and 19X3. The new facility will be in full use from 1 July 19X3.