Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Q1. You have been asked by the Chief Executive Officer of Khaola Construction Company to evaluate the proposed acquisition of a new equipment costing M50
Q1. You have been asked by the Chief Executive Officer of Khaola Construction Company to evaluate the proposed acquisition of a new equipment costing M50 000. The equipment is to be depreciated for three years at 1/3%, 44.45%, 14.81%, and 7.41% for years 1, 2, 3, and 4 respectively as the purchase is approximated as being half way through the first year. The company will incur M10 000 to modify the equipment for any special use. The equipment would be sold after three years for M20 000 and it would require an increase in net working capital of M2 000 at the start of the project, and this would be recovered at the end of the project with the company saving M20 000 annually before tax operating costs. The tax rate is 40%. Required: (a). What are the operating cash flows in years 1, 2 and 3? (10marks). (3marks). (b). Calculate the termination cash flow of the project for the company (c). Calculate the tax payable by the company (5marks)
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