Q1. You have been asked by the Chief Executive Officer of Khaola Construction Company to evaluate the proposed acquisiti

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Q1 You Have Been Asked By The Chief Executive Officer Of Khaola Construction Company To Evaluate The Proposed Acquisiti 1 (51.3 KiB) Viewed 17 times

Q1. You have been asked by the Chief Executive Officer of Khaola Construction Company to evaluate the proposed acquisition of a new equipment costing M50 000. The equipment is to be depreciated for three years at 1/3%, 44.45%, 14.81%, and 7.41% for years 1, 2, 3, and 4 respectively as the purchase is approximated as being half way through the first year. The company will incur M10 000 to modify the equipment for any special use. The equipment would be sold after three years for M20 000 and it would require an increase in net working capital of M2 000 at the start of the project, and this would be recovered at the end of the project with the company saving M20 000 annually before tax operating costs. The tax rate is 40%. Required: (a). What are the operating cash flows in years 1, 2 and 3? (10marks). (3marks). (b). Calculate the termination cash flow of the project for the company (c). Calculate the tax payable by the company (5marks).