Calculating 'cash flows at the start' Bathurst Corporation (BATH) provides racing car experiences to its customers and it is considering whether to buy a new racing car. BATH plans to borrow $150,000 in debt to help fund the purchase of the new car. The new car has a purchase price of $300,000. The new car has a useful life of 15 years. Assume the company tax rate is 30%. The new racing car will result in a decrease in accounts receivable for the company from $10,000 to $8,000. BATH anticipates that inventory will increase by $10,000 to $20,000. Last month, BATH paid BCG Consultants $3,000 to assess demand for new racing car experiences in the new racing car. In order to be able to operate the new car, the three car drivers which work for BATH immediately need to undertake a one-day training class. The training costs are tax deductible, and will cost a total of $4,000 for all three drivers. To accommodate the new car, BATH will build a garage to park, maintain and keep the car safe. The garage will cost $150,000 and can be depreciated on a straight-line basis over 30 years. Only if the new car is purchased, BATH will sell a used engine which they have and which is not compatible with the new car. This used engine has a current value of $35,000. and has been fully depreciated for tax purposes. What are the 'cash flows at the start'? [Describe and list separately each cash flow and the corresponding amount on a new line, as in lecture and tutorial examples.] [Where applicable, show as much working out as possible, otherwise you may be penalised]. Calculating 'cash flows at the start' Bathurst Corporation (BATH) provides racing car experiences to its customers and it is considering whether to buy a new racing car. BATH plans to borrow $150,000 in debt to help fund the purchase of the new car. The new car has a purchase price of $300,000. The new car has a useful life of 15 years. Assume the company tax rate is 30%. The new racing car will result in a decrease in accounts receivable for the company from $10,000 to $8,000. BATH anticipates that inventory will increase by $10,000 to $20,000. Last month, BATH paid BCG Consultants $3,000 to assess demand for new racing car experiences in the new racing car. In order to be able to operate the new car, the three car drivers which work for BATH immediately need to undertake a one-day training class. The training costs are tax deductible, and will cost a total of $4,000 for all three drivers. To accommodate the new car, BATH will build a garage to park, maintain and keep the car safe. The garage will cost $150,000 and can be depreciated on a straight-line basis over 30 years. Only if the new car is purchased, BATH will sell a used engine which they have and which is not compatible with the new car. This used engine has a current value of $35,000. and has been fully depreciated for tax purposes. What are the 'cash flows at the start'? [Describe and list separately each cash flow and the corresponding amount on a new line, as in lecture and tutorial examples.] [Where applicable, show as much working out as possible, otherwise you may be penalised]
