• Lungta Company is planning for an unrelated diversification for its business. For this initiation, Chador from GCBS has been given charge to execute the long-term investment decision analysis. The cost of new machine will be around Nu. 1 million, additionally lorry charge of Nu. 15,000 and installation charge of Nu 25,000 is applicable to this purchase. The useful life of the machine has been estimated at 5 years. The residual value after 5 years is estimated at Nu. 20,000. The diversification plan will bring into the company, a gross turnover of 1,500 units per year for 5 years at an incremental cost of Nu 150 per units in year I, excluding the depreciation cost. Each unit sales will be at rate of Nu. 700. There will be inflation impact to both selling price and the cost with 4% increase on annual basis. Additionally, it is also worth noting that Lungta Company’s net operating working capital will require a rise of an amount equal to 10% of the sales revenue. The firms tax rate will be similar to that of the prevailing corporate tax set by the Government of Bhutan and the hurdle rate to be used for the time value analysis is worked out as 12%. Question 1. While calculating the project cash flow, are we supposed to subtract interest expenses or the dividends?