Question
ABC limited is considering the purchase of a new plant. The plant will cost Rs 500,000 plus Rs 200,000 for shipping and installation and falls
ABC limited is considering the purchase of a new plant. The plant will cost Rs 500,000 plus Rs 200,000 for shipping and installation and falls under the 3-year MACRS class. NWC will rise by Rs 50,000. Management forecasts that revenues will increase by Rs 1,100,000 for each of the next 4 years and will then be sold (scrapped) for Rs 100,000 at the end of the fourth year, when the project ends. Operating costs will rise by Rs 700,000 for each of the next four years. ABC limited is in the 40% tax bracket.
Calculate incremental cash flows in asset expansion project. (3 year MACRS depreciation rates are 33.33%, 44.45%, 14.81% and 7.41% from year1 to year4)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started