Question

A company is planning an investment of 5,000,000 today.
The investment is depreciated on a straight-line basis over the life of 5 years and the residual value at the end of the project is assumed to be 500,000.
The investment will generate the following income over the next five years: 4,000,000, 4,500,000, 5,000,000, 5,500,000 and 6,000,000.
Payable operating expenses (operating expenses excluding depreciation) will amount to 60% of the income in the individual year.
The annual working capital requirement is assumed to be 10% of the following year's turnover.
The project will be part-financed with a serial loan (repaid with equal annual installments over the project's lifetime) of 5,000,000 at an interest rate of 2% pa.
The project's tax rate is 20%.

If we use the total capital method, what is tax calculated in year 3?

Answer 1