1. Cash flow at the start
2. Cash flow over the life
3. Cash flow at the end
Assignment Case Information "Giga Flake factory" (1 of 2) 1. Quantum Graphite Limited (hereafter known as "QGL") is company 5. The factory has a ten-year useful life and is expected to incur that was listed on the Australian Securities Exchange (ASX). On 23 capital costs of $1,500,000. To build the factory, QGL plans to March 2023 the company had a market capitalization of $176.92 borrow $1,000,000 today and to use $500,000 cash to fund the million. Quantum Graphite Limited explores, mines, processes, Giga Flake factory. QGL's accountant confirms that interest manufactures, and sells flake graphite and related products in payments are classified as a business expense and are therefore tax Australia and internationally. deductible. QGL's bank has offered a $1,000,000 ten-year interest- 2. On 23 March 2023, the company made an ASX Announcement only loan at 8.9%. about its "successful completion of initial thermal purification 6. QGL owns that land which can be used for the new Giga Flake treatment" which is part of the company's plan to mass produce factory. The land is currently leased to a construction company for "Uley graphite flakes" which are intended to be used as anode $50,000. If the Giga Flake factory is not built, QGL will continue the material in Li-ion batteries. lease agreement. 3. QGL directors expect a strong future demand in Li-ion batteries. 7. The factory requires to purchase and install plant and equipment at Based on the "successful completion of initial thermal purification a cost of $380,000 dollars. Most of the equipment will be treatment" in March 2023, QGL asks you to assess the potential purchased from other states and requires transportation to the construction of a "Giga Flake factory" to produce "Uley graphite new factory building at a cost of $31,000. flakes". 8. If the factory project goes ahead, QGL will engage a patent lawyer 4. In January 2023, QGL commissioned a market study on consumers' at a cost of $40,000 to protect the technology employed to produce positive views on general electrification trends of transportation the Uley graphite flakes. means, e.g., cars, trucks, ships, or planes. The study cost $250,000. 9. QGL plans on building the Giga Flake factory in 2023. The first year There is debate amongst QGL managers whether this taxof cash flow will be in 2024. In 2024, cash sales of Uley graphite deductible expense should be included in the financial analysis of flakes are expected to be 1,100,000 and management forecasts the Giga Flake factory as a cash outflow in the year 2023 to ensure that a sales growth rate of 6% p.a. it is not wasted. The Australian Taxation Office (ATO) has confirmed that business expenses are tax deductible in the same year that the expense is incurred. Assignment Case Intormation "Giga Flake tactory" (2 ot 2) 10. Annual variable cash costs (excluding staff training) at the new marketing expense on the 2023 income and they have suggested factory are expected to be 26\% of each year's cash sales. Annual that the company's entire 2023 marketing expense should be fixed operating costs are forecast to be $220,000 in 2024 and are expensed over the new factory's ten-year useful life. expected to increase at a rate of 5% p.a. 15. The repairs and maintenance expense associated with the Giga Flake 11. QGL's annual head office costs $211,000 p.a., regardless of the Giga factory are estimated at $100,000 for the first five years. After that, Flake factory plan. For cost accounting purposes, QGL accountants QGL expects this amount to double for the rest of the factory's tenallocate overhead costs across each business unit and projects. If year useful life. the new Giga Factory goes ahead, it will be allocated $47,000 of 16. QGL will implement a private placement in 2028 to raise an additional head office costs. $1 million in cash. These funds will be used to develop new technologies outside of the Uley graphite flake technology. 12. Because of the novelty of the technology, all production staff in the new Giga Flake factory must receive training at a cost of $140,000 17. QGL assumes that the Giga Flake factory building can be sold for $700,000 in the year 2033. At that time (i.e., in 2033), the resale value in the first year of operation. Due to staff turnover, it is assumed of the plant and equipment is $100,000. that this training will be repeated every two years after that for 18. The salary of QGL's Chief Executive Officer $470,000 in 2023 and is new staff at a cost of $50,000. The QGL accounting department not expected to change whether the new Giga Flake factory is does not classify training as a part of annual operating costs approved by the QGL's Board of Directors or not. 13. The Australian Taxation Office (ATO) has confirmed to QGL that for 19. If the Board approves the new flake Giga Flake factory, QGL tax purposes the Giga Flake factory has a twenty-five-year life and anticipates that it will require inventory to increase to $321,000 today the plant and equipment (P\&E) assets have an eight-year tax life. compared with the existing amount of $45,000. In addition, Accounts While QGL expects that P\&E assets can be operated effectively for Payable is expected to increase by $155,000 to $198,000. Further, the ten years before requiring replacement, QGL's management Accounts Receivable balance will increase from the current level of accountant depreciates P\&E assets over an operational five-year $15,000 to $435,000. life. 20. QGL has a required rate of return of 15%. Assume the company tax 14. In 2022, QGL's total marketing expense for 2023 and 2024 were rate will remain at 30%. already budgeted at $45,000. To promote the new Uley graphite flakes product, QGL will approve a further $235,000 of marketing in 2023 only. QGL managers are worried about the impact of this high Assignment Case Information "Giga Flake factory" (1 of 2) 1. Quantum Graphite Limited (hereafter known as "QGL") is company 5. The factory has a ten-year useful life and is expected to incur that was listed on the Australian Securities Exchange (ASX). On 23 capital costs of $1,500,000. To build the factory, QGL plans to March 2023 the company had a market capitalization of $176.92 borrow $1,000,000 today and to use $500,000 cash to fund the million. Quantum Graphite Limited explores, mines, processes, Giga Flake factory. QGL's accountant confirms that interest manufactures, and sells flake graphite and related products in payments are classified as a business expense and are therefore tax Australia and internationally. deductible. QGL's bank has offered a $1,000,000 ten-year interest- 2. On 23 March 2023, the company made an ASX Announcement only loan at 8.9%. about its "successful completion of initial thermal purification 6. QGL owns that land which can be used for the new Giga Flake treatment" which is part of the company's plan to mass produce factory. The land is currently leased to a construction company for "Uley graphite flakes" which are intended to be used as anode $50,000. If the Giga Flake factory is not built, QGL will continue the material in Li-ion batteries. lease agreement. 3. QGL directors expect a strong future demand in Li-ion batteries. 7. The factory requires to purchase and install plant and equipment at Based on the "successful completion of initial thermal purification a cost of $380,000 dollars. Most of the equipment will be treatment" in March 2023, QGL asks you to assess the potential purchased from other states and requires transportation to the construction of a "Giga Flake factory" to produce "Uley graphite new factory building at a cost of $31,000. flakes". 8. If the factory project goes ahead, QGL will engage a patent lawyer 4. In January 2023, QGL commissioned a market study on consumers' at a cost of $40,000 to protect the technology employed to produce positive views on general electrification trends of transportation the Uley graphite flakes. means, e.g., cars, trucks, ships, or planes. The study cost $250,000. 9. QGL plans on building the Giga Flake factory in 2023. The first year There is debate amongst QGL managers whether this taxof cash flow will be in 2024. In 2024, cash sales of Uley graphite deductible expense should be included in the financial analysis of flakes are expected to be 1,100,000 and management forecasts the Giga Flake factory as a cash outflow in the year 2023 to ensure that a sales growth rate of 6% p.a. it is not wasted. The Australian Taxation Office (ATO) has confirmed that business expenses are tax deductible in the same year that the expense is incurred. Assignment Case Intormation "Giga Flake tactory" (2 ot 2) 10. Annual variable cash costs (excluding staff training) at the new marketing expense on the 2023 income and they have suggested factory are expected to be 26\% of each year's cash sales. Annual that the company's entire 2023 marketing expense should be fixed operating costs are forecast to be $220,000 in 2024 and are expensed over the new factory's ten-year useful life. expected to increase at a rate of 5% p.a. 15. The repairs and maintenance expense associated with the Giga Flake 11. QGL's annual head office costs $211,000 p.a., regardless of the Giga factory are estimated at $100,000 for the first five years. After that, Flake factory plan. For cost accounting purposes, QGL accountants QGL expects this amount to double for the rest of the factory's tenallocate overhead costs across each business unit and projects. If year useful life. the new Giga Factory goes ahead, it will be allocated $47,000 of 16. QGL will implement a private placement in 2028 to raise an additional head office costs. $1 million in cash. These funds will be used to develop new technologies outside of the Uley graphite flake technology. 12. Because of the novelty of the technology, all production staff in the new Giga Flake factory must receive training at a cost of $140,000 17. QGL assumes that the Giga Flake factory building can be sold for $700,000 in the year 2033. At that time (i.e., in 2033), the resale value in the first year of operation. Due to staff turnover, it is assumed of the plant and equipment is $100,000. that this training will be repeated every two years after that for 18. The salary of QGL's Chief Executive Officer $470,000 in 2023 and is new staff at a cost of $50,000. The QGL accounting department not expected to change whether the new Giga Flake factory is does not classify training as a part of annual operating costs approved by the QGL's Board of Directors or not. 13. The Australian Taxation Office (ATO) has confirmed to QGL that for 19. If the Board approves the new flake Giga Flake factory, QGL tax purposes the Giga Flake factory has a twenty-five-year life and anticipates that it will require inventory to increase to $321,000 today the plant and equipment (P\&E) assets have an eight-year tax life. compared with the existing amount of $45,000. In addition, Accounts While QGL expects that P\&E assets can be operated effectively for Payable is expected to increase by $155,000 to $198,000. Further, the ten years before requiring replacement, QGL's management Accounts Receivable balance will increase from the current level of accountant depreciates P\&E assets over an operational five-year $15,000 to $435,000. life. 20. QGL has a required rate of return of 15%. Assume the company tax 14. In 2022, QGL's total marketing expense for 2023 and 2024 were rate will remain at 30%. already budgeted at $45,000. To promote the new Uley graphite flakes product, QGL will approve a further $235,000 of marketing in 2023 only. QGL managers are worried about the impact of this high
