Question

Swindler Ltd has completed a feasibility study costing $15,914 to determine if there is any benefit in purchasing a new asset. The machine will cost $280,432 and an additional $13,471 will need to be spent to have the machine in operational state. Before the machine can be used staff must be trained at a further cost of $8,898. The project is expected to last for 5 years and the Taxation Office has confirmed this. At the end of the project the machine will be fully depreciated. Initial advertising costs are expected to $12,782 and additional stock of $70,610 will be needed. Wages will change from $85,000 to $39,323 and Fixed Costs will remain at $61,418. The new machine is expected to produce sales of $1,833,453 in the first year and will grow by 13% each year of the project. Material costs will be 28% of sales in each year.

You are required to calculate the net cash flow (round to the nearest dollar and DO NOT include $ sign) that would appear in Year 1 of a Capital Budget.  

Assume the Australian Company tax Rate applies.

Answer 1

Cost of Machinery
Cost of acquisition	280,432.00
Installation cost	13,471.00
Training cost	8,898.00
Total	302,801.00
Depreciation
Per year depcreation for life of 5 years and zero salvage cost	60,560.20
(302,801 divided by 5)
Cash Flow statement	Amount
Sales	1,833,453.00
Less: Costs
Fixed Cost	61,418.00
Material cost (28% of sale)	513,366.84
Depreciation	60,560.20
Wages	39,323.00
Advertising cost	12,782.00
Additional stock	70,610.00
Total Cost	758,060.04
Sales minus Cost	1,075,392.96
Tax (Considered @ 30%)	322,617.89
Net Cash Flow	752,775.07