Assuming an interest rate of 6 per cent, what is the net present value of the net of tax cash flows in Question 46.2 for 2004, 2005, 2006 and 2007?

Data From Question 46.2:-

Assume the company in Question 46.1 pays tax at 30 per cent, on 30 September each year, nine months after the end of its financial period. The company receives 20 per cent writing-down allowances on the cost of equipment and will receive the allowances for 2004 expenditure to be offset against the tax payable on the profits for 2004. 100 per cent capital allowances were received on the old equipment sold in 2005 and the receipts from the sale of the old equipment must, therefore, be treated ass taxable income of 2005. Show the impact on the cash flows of these tax items.

Data From Question 46.1:-

The following project costs have been estimated relating to the upgrading of some equipment;

: all the costs are ae incurred solely because of the project:

Ignoring tax, prepare a statement showing the outlays of cash on the project in 2004 and 2005. The new facility will be in full use from 1 July 2005.

Transcribed Image Text:

2004 January 1 One year's rent on premises paid 12,000 31 Equipment purchased 20,000 March 31 Installation of equipment completed and paid 4,000 December 31 Costs incurred in commissioning equipment 8,000 2005 January 1 One year's rent on premises paid 12,000 March 31 Additional commissioning costs paid 6,000 May 31 Training costs paid 3,000 June 30 Additional working capital provided 16,000 December 31 Cash proceeds from sale of old equipment 5,000