The subject is Project management Consider Cement Project with the following inf
ID: 2813604 • Letter: T
Question
The subject is Project managementConsider Cement Project with the following information, The initial investment outlay on the project is birr 100 million which is consists of 80 million plant and machinery and the remaining 20million is on working capital. The entire outlay will be made at the beginning of the project The project will be financed with 50 million of equity capital and the reaming 50 million of debt financing The life of the project is expected to be 5 years. At the end of the 5th years a fixed asset will fetch a net salvage value of birr 30 million where as working capital liquidated at its book value The project is expected to increase the revenue of the firm by 120 m per year. The increase in cost on account of the project is expected to be 80 m per year (this includes all costs items other than depreciation and tax). Plant and machinery will be depreciated at the rate of 25% per year as shown below First year Second year Third year Fourth birr Fifth year 20m 15m 11.25m 8.44m 6.33m If the effective tax percent will be 30% and interest rate is 10% , given the above information calculate the yearly cash flow of the project The subject is Project management
Consider Cement Project with the following information, The initial investment outlay on the project is birr 100 million which is consists of 80 million plant and machinery and the remaining 20million is on working capital. The entire outlay will be made at the beginning of the project The project will be financed with 50 million of equity capital and the reaming 50 million of debt financing The life of the project is expected to be 5 years. At the end of the 5th years a fixed asset will fetch a net salvage value of birr 30 million where as working capital liquidated at its book value The project is expected to increase the revenue of the firm by 120 m per year. The increase in cost on account of the project is expected to be 80 m per year (this includes all costs items other than depreciation and tax). Plant and machinery will be depreciated at the rate of 25% per year as shown below First year Second year Third year Fourth birr Fifth year 20m 15m 11.25m 8.44m 6.33m If the effective tax percent will be 30% and interest rate is 10% , given the above information calculate the yearly cash flow of the project The subject is Project management
Consider Cement Project with the following information, The initial investment outlay on the project is birr 100 million which is consists of 80 million plant and machinery and the remaining 20million is on working capital. The entire outlay will be made at the beginning of the project The project will be financed with 50 million of equity capital and the reaming 50 million of debt financing The life of the project is expected to be 5 years. At the end of the 5th years a fixed asset will fetch a net salvage value of birr 30 million where as working capital liquidated at its book value The project is expected to increase the revenue of the firm by 120 m per year. The increase in cost on account of the project is expected to be 80 m per year (this includes all costs items other than depreciation and tax). The life of the project is expected to be 5 years. At the end of the 5th years a fixed asset will fetch a net salvage value of birr 30 million where as working capital liquidated at its book value The project is expected to increase the revenue of the firm by 120 m per year. The increase in cost on account of the project is expected to be 80 m per year (this includes all costs items other than depreciation and tax). Plant and machinery will be depreciated at the rate of 25% per year as shown below First year Second year Third year Fourth birr Fifth year 20m 15m 11.25m 8.44m 6.33m If the effective tax percent will be 30% and interest rate is 10% , given the above information calculate the yearly cash flow of the project Plant and machinery will be depreciated at the rate of 25% per year as shown below First year Second year Third year Fourth birr Fifth year 20m 15m 11.25m 8.44m 6.33m If the effective tax percent will be 30% and interest rate is 10% , given the above information calculate the yearly cash flow of the project
Explanation / Answer
Cash outflow ate year 0 = Initial investment + working capital
Cash outflow ate year 0 = 80 million + 20 million = -100 million
Operating cash inflow from year 1 through year 5 = ( Revenue - costs - depreciation)( 1 - tax) + depreciation
Operating cash flow for year 1 = ( 120 - 80 - 20)(1 - 0.30) + 20
Operating cash flow for year 1 = 34 million
Operating cash flow for year 2 = ( 120 - 80 - 15)(1 - 0.30) + 15
Operating cash flow for year 2 = 32.5 million
Operating cash flow for year 3 = ( 120 - 80 - 11.25)(1 - 0.30) + 11.25
Operating cash flow for year 3 = 31.375 million
Operating cash flow for year 4 = ( 120 - 80 - 8.44)(1 - 0.30) + 8.44
Operating cash flow for year 4 = 30.532 million
Operating cash flow for year 5 = ( 120 - 80 - 6.33)(1 - 0.30) + 6.33
Operating cash flow for year 5 = 29.899 million
Book value = 80 - 20 - 15 - 11.25 - 8.44 - 6.33 = 18.98
Non operating cash flow for year 5 = Salvage value + recovery of working capital - tax( salvage value - book value)
Non operating cash flow for year 5 = 30 + 20 -0.30(30 - 18.98)
Non operating cash flow for year 5 = 30 + 20 - 3.306
Non operating cash flow for year 5 = 46.694
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