Cash out flow, Net cash outflow and Cash inflow Assignment Help – Homework Help
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Cash Out Flow
Cost of New Machine/Plant *
Add: Installation cost and other direct cost
Relating to asset *
Add: Working capital requirement *
Add: P.V of subsequent capital expenditure, if any *
Less: Present value of subsidy received, if any (*)
Net cash outflow *
Revenue from investment *
Less: All the expenditure excluding depreciation *
Less: Tax Payable *
Add: Tax shield on depreciation *
Cash Inflow *
Alternatively, it can be calculated by adding depreciation to PAT.
· In last year of the useful life of the assets, following amounts will be added in the figure calculated as above.
(a) Salvage Value
(b) Recovery of working capital introduced in the initial year. In the absence of any specific information, it may be presumed that working capital introduced in the beginning will be recovered fully at the end of the project.
(c) Tax shield or tax liability on capital loss or capital gain respectively will be adjusted as per provision of section 50 of Income tax Act. As a practicable measure it may be assumed that block of asset to which this particular asset pertains, cease to exist after the useful life of the project.
If there is net loss in any year, in that case we have two alternatives:
· We can assume that company also have other businesses and loss from this project can be set-off against profits of other businesses which will enable the company to claim tax shield on this shield on loss will be calculated and loss will be reduced by tax shield for calculation of present value.
· Alternatively, we can carry forward loss to next years, in this situation profit of next year’s will be reduced by brought forward loss for calculation of tax liability, until this loss does not fully set-oft.