Question 1:

Investment
Salvage Value
Income Taxes
Life Years

1,000,00
0
0
34%
5

a)

Year 0
Investment
Annual Returns (PBT)
Taxes
Profit After Taxes
Depreciation
Net Cash Flow
Post Tax Discounted Cash Flow
Rate of return

Net Cash Flow before Taxes

Pre Tax Discounted Cash Flow
Rate of return

Year 1

Year 2

Year 3

Year 4

Year 5

300,0
00
10200
0
198,0
00
20000
0

300,0
00
10200
0
198,0
00
20000
0

300,0
00
10200
0
198,0
00
20000
0

300,0
00
10200
0
198,0
00
20000
0

300,0
00
10200
0
198,0
00
20000
0

398,0
00

398,0
00

398,0
00

398,0
00

398,0
00

500,0
00

500,0
00

500,0
00

500,0
00

500,0
00

1,000,00
0

1,000,00
0
28%
1,000,00
0
41%

Based on above calculations, we can see that Post Tax Discounted Cash Flow Rate of
return is 28% and Pre Tax Discounted Cash Flow Rate of return is 41%.

b)
Year 0
Investment

1,000,00
0

Year 1

Year 2

Year 3

Year 4

Year 5

Annual Returns (PBT)

Taxes
Profit After Taxes
Depreciation
Net Cash Flow
Net Present Value after Tax

1,000,00
0
$696,516
.95

300,0
00
10200
0
198,0
00
20000
0

321,0
00
10914
0
211,8
60
20000
0

343,47
0
11677
9.8
226,69
0
20000
0

367,51
3
12495
4.4
242,55
9
20000
0

393,23
9
13370
1.2
259,53
8
20000
0

398,0
00

411,8
60

426,69
0

442,55
9

459,53
8

Hence Net present value after tax is 696516.95.

Question 2:
Exapansion
plan:
13000
0
15000 per
Additional Labour Cost
0 year
Additional Cost for overhead , depreication, taxes
per
and insurance
60000 year
Year 1
22170
Revenue
0
21000
Annual Cost
0
Profits
11700
-130000 11700
Rate of return
9%
Initial Investment

Hence the revenue should be 221700.

B) Construction of New Facilities:

20000
0
12000 per
0 year
per
70000 year
Year 1
22170
0
12000
0
70000
9700
4000
18000
-200000 18000
9%

Initial Investment
Additional Labour Cost
Overhead Costs

Revenue
Additional Labour Cost
Overhead Costs
Depreciation Costs
Insurance and Taxes
Profits
Rate of return
Minimum Service
Life Allowed

20.6185567

Hence minimum service life allowed would be 20

years
C)

Investme
nt
Net
Income
Depreciat
ion
Net Cash
Flow
NPV

Year
1

Year
2

Year
3

Year
4

Year
5

Year
6

Year
7

Year
8

Year
9

Year
10

1800
0

1800
0

1800
0

1800
0

1800
0

1800
0

1800
0

1800
0

1800
0

1800
0

9700
2770
0

9700
2770
0

9700
2770
0

9700
2770
0

9700
2770
0

9700
2770
0

9700
2770
0

9700
2770
0

9700
2770
0

9700
2770
0

-130000

-130000
$43,824
.88

Hence NPV of the project would be 43824.88

Question 3:

Total depreciable Capital

Installation Period
Working Capital Require
Capacity
Sales Revenue
Cost of Sales
Base Depreciation
Income Taxes

Ye
ar
0

90
3
40
90%
150
100
8%
37%

Yea
r1

Year
2

Revenue
Cost Of Sales
Depreciation
PBT
Taxes
Profit After Taxes
Capiatal
Investment

-90

Cumulative Capital
Investment

-90

Net Earnings
ROI
Net Investment to be
recovered

MM
Years
MM
MM
MM

Year Year
Year
Year
Year Year
3
4
5
6
7
8
150
150
150
150
150
150
100
100
100
100
100
100
7.2
7.2
7.2
7.2
7.2
7.2
42.8
42.8
42.8
42.8 42.8 42.8
15.8 15.83 15.83 15.83 15.8 15.8
36
6
6
6
36
36
26.9 26.96 26.96 26.96 26.9 26.9
64
4
4
4
64
64

-40
-90

-130
-130
0.20
74
-130

26.9
64

26.96
4

26.96
4

26.96
4

103.
04

76.07
2

49.10
8

22.14
4

26.9
64

26.9
64

4.82

31.7
84

a) Depreciation per year = 8% of $90 MM

= $ 7.2 MM
b) Pre Tax Earnings = $42.8 MM
c) After Tax Earnings = $26.964 MM
d) Total Capital Investment = $90 MM for process installation
+ $40 MM for working capital
e) ROI , using after tax earnings = 20.742%
f) Payback period = 4.17 years

4.

a) Total amount of money to be paid in option 1) = Euro 79060

b) Total amount of money to be paid in option 2) = Euro 82295
c) Comparison Of both options:
We can look at the present value to see the amount to be financed.
Financing Values are as below:
Option 1) Euro 54,088.39
Option 2) Euro 53,879.98
d) Option with an alternative of 590 per month for 151 months gives total amount
to be paid as Euro 89090 and 58328.78.
Saving in financed value vs Option1
Saving in financed value vs Option2

Saving in total amount to be paid vs option 1

Saving in total amount to be paid vs option 2

$4,240.40
$4,448.81

10030
6795

Question 5:

Fixed Cost
Life of Plant
Depreciation Per
year
Interest Rate

10300000
10
1030000

Operating Hours
production Rate

8000
10000

Years

10%

Variable Cost
Raw material
Total Raw Material
Cost

hours
tonne per year

0.9
90000
00

per kg

Utility Cost
Electrcity
Steam
Water

0.0148
45
0.0020
45
0.0048
44

Total Utility Cost

per Kg

0.0217
34

Total Utility Cost per

year

21734
2.6

Labour Costs
Operating Labour
Operating
Supervision
Quality Control
Maintenance

24
4.8
4.8
0.648

Labour
Total Labour Cost Per Hour
Total Labour Cost
Per Year

34.248
27398
4

Other Material
Maintenance
Material
Operating
Supplies

18540
0
77250

Total Other Material

Cost

26265
0

Indirect Costs
Depreciation Cost
Property Taxes
Insurance
Plant Overhead
Land Cost
Land
Development
Cost
Total Indirect Cost

92700
20600
0
10300
0
16588
8
15450
21630

60466
8

1)

Depreciable Capital
Cost

103000
0

2)

Total Direct Production

Cost

975397
7

3)

Total Indirect
Cost

604668

4)

Total Production Cost

103586
45

5)

Prodcution Cost of 1 kg of
product

1.0358
64