QUESTION 1 CAPITAL BUDGETING AND CASH FLOW (20 MARKS) PRINCIPLES 1.1 REQUIRED Calculate the initial investment of the replacement project from the information provided below. INFORMATION (8) Gooners Ltd wants to replace an old machine with a new one that will cost R750 000 plus staff training costs of R50 000 for the machine operators. The old machine has a book value of RO and can be sold for R15 000. R3 000 will be paid to remove the old machine. The old machine required an increase in net working capital of R180 000. The new capital expenditure will result in an increase in the net working capital by R270 000. The firm is subjected to a tax rate of 30%. REQUIRED 1.2 Use the information provided below to calculate the operating cash flows over the four- year period. INFORMATION (6) Scampi Ltd has decided to invest in equipment that cost R200 000, excluding R20 000 installation costs that have to be incurred. The equipment is to be depreciated on a straight- line basis over a four-year period. The following are the expected incremental increases in net operating profit (loss) after taxes (NOPAT) over the four-year life of the investment: Year 1 50 000 28 000 3 (4 000) 16 000 1.3 REQUIRED Calculate the terminal cash flow from the information provided below. INFORMATION Richmond Ltd expects to sell equipment at the end of its useful life for R9 000. The equipment is expected to have a carrying/book value of RO. The removal and clean-up costs are estimated at R3 000. Net working capital worth R300 000 will be recovered. The company is subject to a 30% tax rate