Page 91 - FM Integrated WorkBook STUDENT 2018-19
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Investment appraisal – Further aspects of discounted cash flows
(W2) Tax-allowable depreciation
Time $m Tax saving Timing of tax relief
$m
T0 Initial investment 2,500
T1 Tax-allowable depreciation @ 25% (625) 187.5 T2
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Written down value 1,875
T2 Tax-allowable depreciation @ 25% (468.75) 140.625 T3
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Written down value 1,406.25
Sale proceeds (700)
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T3 Balancing Allowance 706.25 211.875 T4
(W3) Working capital requirements
$ millions T0 T1 T2 T3
Sales 1,854 2,864 983
Working capital required 185 286 98
Working 185–286 286–98 98–0
Cash flow (185) (101) 188 98
(W4) Discount rate
(1+i) = (1+r) × (1+h) = 1.077 × 1.04 = 1.12, giving a money rate (i) = 12%.
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