requirements:

A)prepare corrected statement of incremental cash flows. Give brief notes on any of assistants figures altered.

b) calculate

the projects payback period

the projects net present value at 31 December year 0

c) write a memo to the board advising of acceptance or rejection of the project.

ignore taxation in answers

4.4 The accountant of your business has recently been taken ill through overwork. In his absence, his assistant has prepared some calculations of the profitability of a project, which are to be discussed soon at the board meeting of your business. His workings, which are set out below, include some errors of principle. You can assume that the statement below includes no arithmetical errors. Year Year Year Year Year Year 5 6 1 2 3 4 EOOO EOOO EOOO EOOO EOOO EOOO 470 170 470 470 Sales revenue 450 Less costs 132 132 132 Materials 132 94 94 94 94 Labour 45 47 47 47 Overheads 47 Depreciation 120 120 120 120 120 Working capital Interest on working capital 27 27 27 27 27 Write-off of development costs 30 30 30 Total costs 180 438 450 450 420 420 Operating profit/(loss) (180 12 20 20 50 50 Total profit (loss) ($28,000) Cost of equipment 2600,000 = Return on investment (4.7%) You ascertain the following additional information: The cost of equipment includes $100,000, being the carrying amount of an old machine. If it were not used for this project it would be scrapped with a zero net realisable value. New equipment costing $500,000 will be purchased on 31 December Year 0. You should assume that all other cash flows occur at the end of the year to which they relate. The development costs of $90,000 have already been spent. everheads costed at 501 4 direct labair incremental accheads likely amani to $30, 020 cost of capital 12 %