Luqman Corporation usually depreciates its assets on a straight line basis to zero value. This policy is also applied to its proposed capital project which will require an initial investment of RM2.55 million. At the end of its three (3) year's useful life, the asset is to be sold for RM550,000. The project will require RM25,000 net working capital at the start of year 1, RM35,000 at the start of year 2 and RM30,000 at the start of year 3. The company is paying 30 percent tax. Other relevant information about the project is provided below: Year Projected sales units Unit selling price (RM) Unit variable cost (RM) Annual fixed cost (RM) 2 60,000 60 80,500 62 100,100 64 45 70,000 35 40 60,000 65,000 Determine the following: i) net tax cash flow from the resale of asset at the end of its useful life. operating cash flows for year 1, 2 and 3. ii) net change in working capital flows at the start of year1, 2 and 3. iv) total project cash flow.

Luqman Corporation usually depreciates its assets on a straight line basis to zero value. This policy is also applied to its proposed capital project which will require an initial investment of RM2.55 million. At the end of its three (3) year's useful life, the asset is to be sold for RM550,000. The project will require RM25,000 net working capital at the start of year 1, RM35,000 at the start of year 2 and RM30,000 at the start of year 3. The company is paying 30 percent tax. Other relevant information about the project is provided below: Year Projected sales units Unit selling price (RM) Unit variable cost (RM) Annual fixed cost (RM) 2 60,000 60 80,500 62 100,100 64 45 70,000 35 40 60,000 65,000 Determine the following: i) net tax cash flow from the resale of asset at the end of its useful life. operating cash flows for year 1, 2 and 3. ii) net change in working capital flows at the start of year1, 2 and 3. iv) total project cash flow.

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

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