Page 453 - FM Integrated WorkBook STUDENT 2018-19

Answers

$ millions T 0 T 1 T 2 T 3 T 4

Sales (W1) 1,854 2,864 983
Variable costs (W1) (721) (1,146) (405)

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Net trading inflows 1,133 1,718 578

Tax payable (30%) (340) (516) (174)
Initial investment (2,500)

Scrap proceeds 700

Tax relief on tax-allowable 188 141 212
depreciation (W2)
Working capital (W3) (185) (101) 188 98

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Net cash flows (2,685) 1,032 1,754 1,001 38

DF @ 12% (W4) 1 0.893 0.797 0.712 0.636
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PV (2,685) 922 1,398 713 24

NPV 372

(W1) Revenue and costs

Revenue and costs need to be inflated to be expressed in money terms.

E.g. revenue at T2 = 12m × $225 × 1.032 = $2,864.43m

variable cost at T3 = 4m × $85 × 1.063 = $404.945m

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