Prepare a cash flow statement , Finance Basics

Q1.  A local delivery company has purchased a delivery truck for $15,000.  The truck will be depreciated under MACRS as a five year property.  The trucks market value (salvage value) is expected to decrease by $2,500 per year.  It is expected that the purchase of the truck will increase revenue by $10,000 annually.  The operations and maintenance cost are expected to be $3,000 per year.  The firm is in a 40% tax bracket and its MARR is 15%. The company plans to keep the truck for only two years.   The Income statement is shown below and attached.  

a.  Prepare a cash flow statement for this proposal.

b.  Determine the equivalent present worth  and the internal rate of return.

c.  Should the project be approved?

 

Purchase Cost

($15,000)

year 1

year 2

 

Depreciation MACRS

5

20%

32%

 

Depreciation $

 

$3,000

$2,400

 

Book Value

 

$12,000

$9,600

 

Salvage decrease

$2,500

annually

 

 

Salvage Value

 

$12,500

$10,000

 

Gain

 

 

$400

 

Revenue Increase

$10,000

annually

 

 

O & M costs

($3,000)

annually

 

 

Taxes

40%

 

 

 

MARR

15%

 

 

 

Time span

2

years

 

 

 

 

 

 

Income Statement

0

1

2

Revenue

 

$10,000

$10,000

Direct Costs

 

 

 

 

Labor

 

 

 

 

Material

 

 

 

 

Overhead

 

 

 

 

Cost of Goods Sold (COGS)

 

($3,000)

($3,000)

 

Gross Margin

 

$7,000

$7,000

 

Depreciation

 

($3,000)

($2,400)

Earnings Before Interest and Taxes (EBIT)

$11,000

$11,600

 

Income Tax

 

($4,400)

($4,640)

 

Net Income

 

$6,600

$6,960

Posted Date: 2/14/2013 6:32:59 AM | Location : United States







Related Discussions:- Prepare a cash flow statement , Assignment Help, Ask Question on Prepare a cash flow statement , Get Answer, Expert's Help, Prepare a cash flow statement Discussions

Write discussion on Prepare a cash flow statement
Your posts are moderated
Related Questions
Example of Valuation of Bonds and Debentures K is contemplating purchasing a 3 year bond worth 40,000/= carrying a nominal coupon rate of interest of 10 percent.  K necessary

A firm has sales of Rs. 10,00,000. Variable cost is 70%, total cost is Rs.9,00,000 and Debt of Rs. 5,00,000 at 10% rate of interest. If tax rate is 40% calculate:


Conditions under which Loans Are Ideal a) Whenever the company's gearing level is low as the level of outstanding loans is low. b) The company's future cash flows as inflows

I have an assignment for my finance class. The company that i have FOR industry analysis is COSTCO WHOLESALES CORP THAT ITS STOCK IS IN DISCOUNT AND VARIETY StORES INDUSTRY. I need

Investment Bank A lending entity is engaged in all the phases of privacy offerings the including managing, underwriting, trading, and the distributing new security issues.

Formation of Sole Proprietorship Business When an individual plans to start a business, his or her main objective is to earn profit but there are a number of factors to take in

Advantages of Using Debt Finance Interest on debt is a tax permit able expense and as that it is reduced via the tax allowance. The cost of debt is fixed regardless of

Based on the example in Lesson 2, compute your quarterly interest for three years if you deposit $500 at 8 percent, compounded quarterly. Remember to divide the 8 percent by 4 to g

Explain the method of Offer of Sale Method of offer of sale consists in outright sale of securities through intermediary of issue houses or share brokers. In other words, sh