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Rebox Co. is considering a new project which would start immediately and last four years....

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Finance

Rebox Co. is considering a new project which would start immediately and last four years.

  • The company has gathered the following information:
  • (1) Asset cost $160,000. 25% reducing balance writing-down (tax) allowances are available on the asset cost.
  • (2) Annual sales are expected to be 30,000 units in Years 1 and 2 and will then fall by 5,000 units per year in both Years 3 and 4. The selling price in first-year terms is expected to be $4.40 per unit and this is then expected to inflate by 3% per annum.
  • (3) The variable costs are expected to be $0.70 per unit in current terms and the incremental fixed costs in the first year are expected to be $0.30 per unit in current terms. Both of these costs are expected to inflate at 5% per annum.
  • (4) The asset is expected to have a residual value (RV) of $40,000 in money terms.
  • (5) The project will require working capital investment equal to 10% of the expected sales revenue each year. This investment must be in place at the start of each year.
  • (6) Corporation tax is 30% per annum.

  • Requirement:
  • Prepare Pro forma statements for each year.
  • Prepare Depriciation schedule.
  • Calculate OCF.
  • Net/Toal cash flows.
  • USe Excel Sheet to complete the assignment.

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