Swindler Ltd has completed a feasibility study costing $16769 to determine if there is any benefit...

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Swindler Ltd has completed a feasibility study costing $16769 todetermine if there is any benefit in purchasing a new asset. Themachine will cost $318900 and an additional $14152 will need tospent to have the machine in operational state. Before the machinecan be used staff must be trained at a further cost of $9602.
The project is expected to last for 5 years and the TaxationOffice has confirmed this. At the end of the project the machinewill be fully depreciated.
Initial advertising costs are expected to $20571 and additionalstock of $68525 will be needed. Wages will change from $85000 to$39495 and Fixed Costs will remain at $59609.
The new machine is expected to produce sales of $1125787 in thefirst year and will grow by 10% each year of the project. Materialcosts will be 24% of sales in each year.
You are required to calculate the net cash flow (roundto the nearest dollar and DO NOT include $ sign) that would appearin Year 1 of a Capital Budget.
Assume the Australian Company tax Rate applies.

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4.1 Ratings (501 Votes)


NET CASH FLOW In YEAR 1
Cash Flows:
Sales Revenue from new machine	1125787
Material Cost (24%)	-270189	(1125787*24%)
Initial advertising cost	-20571
Training cost	-9602
Increase in wages	-45505	(85000-39495)
Increase in fixed costs	0
Depreciation expense	-66610	(318900+14152)/5
SUM	713310
Before tax incremental profit	713310
Tax expense(30%)	213993	(713310*30%)
Operating profit after tax	499317	(713310-213993)
Add Depreciation (no tax expense)	66610
Net Cash Flow in Year 1	565927	(499317+66610)

NOTE:
Initial investment in machine	333052	(318900+14152)
Useful Life in years	5
Annual depreciation rate =(100/5)%	20%
Annual depreciation	66610	(333052*20%

Feasibility study cost is sunk cost and not a relevant cost
Additional stock is part of initial investment in working capital in year 0

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Transcribed Image Text

Swindler Ltd has completed a feasibility study costing $16769 todetermine if there is any benefit in purchasing a new asset. Themachine will cost $318900 and an additional $14152 will need tospent to have the machine in operational state. Before the machinecan be used staff must be trained at a further cost of $9602.The project is expected to last for 5 years and the TaxationOffice has confirmed this. At the end of the project the machinewill be fully depreciated.Initial advertising costs are expected to $20571 and additionalstock of $68525 will be needed. Wages will change from $85000 to$39495 and Fixed Costs will remain at $59609.The new machine is expected to produce sales of $1125787 in thefirst year and will grow by 10% each year of the project. Materialcosts will be 24% of sales in each year.You are required to calculate the net cash flow (roundto the nearest dollar and DO NOT include $ sign) that would appearin Year 1 of a Capital Budget. Assume the Australian Company tax Rate applies.