Solution-Estimate the project annual after-tax cash flow

Estimate the project annual after-tax cash flow

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Reference no: EM133053469

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Q1. A company must choose between two machines. Machine A costs $50,000 and the annual operating expenses are estimated to be $20,000, while machine B costs $85,000 and has estimated annual operating expenses of $15,000. Both machines have a 10 year life and will have a zero residual value.

A) The company has a required rate of return of 10% p/annum. Which machine should it purchase?

B) Rework the problem for a 7% required rate of return

Q2. The Four & Six Stores Pty Ltd is considering locating another outlet in an eastern suburb of Melbourne. Estimates of sales and operating expenses have been made and an estimated profit and loss statement for the new store drawn up. The profit and loss statement for year 1 is thought to be representative of each of the 10 years of the expected life of the new Four & Six store. The initial outlay to construct the store $4,000,000 while the outlay necessary to stock the store is $2,000,000. The estimated statement of financial performance for the new store for Year 1 is shown in the following table:

Item	($)	($)
Revenue	4,000,000
Less: Sales Returns, Discounts	400,000
Net Revenue		3,600,000
Operating Expenses
Cost of Goods Sold	$1,600,000
Administration Costs	600,000
Depreciation	360,000
Interest	240,000	2,800,000
Net Profit Before Tax		800,000
Tax (30% Tax Rate)		240,000
Net Profit After Tax		560,000

Estimate the project's annual after-tax cash flow.

Reference no: EM133053469

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Estimate the project annual after-tax cash flow

Reference no: EM133053469

Reference no: EM133053469

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