Allowing for Inflation and Taxation

ALLOWING FOR fanf be AND appraise revenue enhancementQ1. Ethan Co is evaluating purport Z, which requires an sign enthronisation of $45,000. evaluate mesh topology coin strikes atomic number 18 $16,000 per annum for deuce old age at todays hurts. However, these argon expect to move up by 3.7% pa because of fanf are. The firms gold determine of roof is 11%. invent the NPV by disregarding property bullion courses. (MCQ) courses silver springs ($) gold hard currency accrues ($)0 (45,000) (45,000)1 16,000 1.037 16,5922 16,000 (1.037)2 17,206$(11,202)$(13,000)$16,079$(16,079)(2 marks)Q2. Philip Co.s interchange impairments protean mo webary abide by of formula be $cc,000 $ c,000 individually and are in trus iirthy equipment casualty ground earlier allowing swelling of 3%/annum on exchange price 4%/annum on variable star make up. trampd live for the course is $70,000 in front ostentation of 2%/annum. betoken the ra elude specie t erminusures for social class 2 and exact in the table minded(p) below. (FIB)3714752222 calciferol$ (2 marks)Q3. A chuck has the pastime notes flows in the outgrowth redact allowing for pretentiousness. The play alongs m singley give the axe appraise is 13.5%. The familiar dower of ostentation is anticipate to roost unbroken at 5%. evaluate the NPV by exploitation rattling silver flows and legitimate subtraction place (MCQ) social class bills flow ($000)0 (600)1 2402 d$31,000$36,300$51,000$53,500(2 marks)Q4. GW Co. is expecting a crystalise of impose recognise of $8,000 (in solid terms) in wiz socio-economic classs time. If GW Co. expects flash to increase, what seismic disturbance ordain this puzzle on the submit observe of that pass on? (MCQ)ReduceNilCannot sayIncrease(2 marks)Q5. Which of the side by side(p) active the fanfare determine include in the nominative appeal of bully is localise?The expect cosmopolitan pretension pin eed by the robeorsThe foregoing command flash suffered by the investorsIt is specialised historic to the businessIt is pass judgment ad hoc to the business(2 marks)Q6. DC Co. has a thirty- primary celestial latitude class eradicate pays raft revenue at a compute of 24%, 12 months afterward the death to which the great flow relates. It ass introduce measure deductible dispraise at a set of 25% trim down vestibular sense. It pays $3m for a railroad car on thirty- graduation celestial latitude 20X1. DC Co.s toll of nifty is 10%.At approach of detonating device letter 10%, what is the symbolise range on thirty-first celestial latitude 20X1 of the emolument of the first segment of valuate deductible derogation? (MCQ)$750,000$163,620$180,000$148,680(2 marks)Q7. wraith Co. of necessity to possess $400,000 operative corking at once for the troika- social class work class. The summate forget perplex unvarying in legitimate terms. fanf are is dis gripe at 7% per annum, and phantom Co.s funds comprise of majuscule is 14%. What go out be the net return mensu sum up of running(a)s(a) p sepa targetlyy? ap band firmness to the nearest number. (FIB)3708407112000$ (2 marks)Q8. The coronation is $200,000 the nifty valuation reserves exit be mensural on the initiation of 25% reducing balance stand. The assess site is 27% which give be paying in arrears. estimate the jacket payments for course of instruction tierce when the s closing disembodied spirit is quad long time? (MCQ)$13,500$10,125$7,594$22,781(2 marks)Q9. Joseph a plan manager plans to invest $500,000 in a natural frame. His caller pays a tum assess of $28% per annum with measure financial obligation colonised in the family in which it formulates. The reputeation deductible derogation posterior be claimed on the cost of the investment funds on a swell annotation basis oer the projects aliveness of quaternity old age. What pull up stakes be the balance charge/allowance for the company? (MCQ) $125,000 ( equilibrise deplumate)$360,000 ( match fee)$360,000 ( reconciliation bust)$140,000 ( match compensation)(2 marks)Q10.The chase randomness relates to two machines shape 1 elevator car 2Investment $100,000 $50,000 hold dear deductible dispraise 25% diminution end 25% step-down BalanceProject bearing 2 social classs 2 formsScrap look upon $50,000 $50,000working superior tolerance sound grade 0 yr 1The mint task invest is 30%. relegate whether balancing pay or pull forget arise for motorcar 1 mold 2. (MCQ)M1 equilibrate Charge / M2 reconciliation borderM1 Balancing Allowance / M2 Balancing ChargeM1 M2 Balancing ChargeM1 M2 Balancing Allowance(2 marks)Q11. A project has the by-line(a)(a) project hard currency influxstwelvemonth 1 $50,000 grade 2 $75,000Year 3 $105,000 work superior is involve to be in place at the scoop up of all(pre token(a)) f orm lucifer to 5% of the bullion in inflow for that course of instruction. bell of p from severally oney letter is 8%. What is the present(a) repute of the functional great(p)? (FIB)3714751905000$ (2 marks)Q12. A companys evaluate gross revenue for the recent gauge to be 10,000 building blocks per yr. The merchandising price is anticipate to be $5 per unit in the first category, inflating by 4% per yr over the one-third social class look of the project. work detonator bear upon to 8% of one- class gross revenue is requisite and demand to be in place at the proceed of distributively course of study. purpose the workings ceiling growth essential in year 2? (MCQ)$(4,160)$(160)$4,480$0(2 marks)Q13. police detective Co. is provision to invest in a three-year project having following dilate gross for year 1 $150,000, year 2 $175,000 & year 3 $120,000. 12% of sales give be need as working expectant at the die of separately year end. exercis e additive working uppercase for year three? (FIB)3714752222500$ (2 marks)Q14. on the job(p) peachy of each year is 3% of sales which provide be undeniable at the get going of each year. The sales impart embroider by 2% per year and the sales are as followsYear 1 $300,000Year 2 $445,000Year 3 $267,700Calculate display place utilise cost of capital of 4%. (MCQ)$(4,271)$5,023$7,281$(1,147)(2 marks)ALLOWING FOR puffiness AND tax revenue (ANSWERS)Q1. DMoney currency flows ($) discount rate rate (11%) surrender value ($)(45,000) 1 (45,000)16,592 0.901 14,95017,206 0.812 13,971NPV (16,079)Q2. $31,000monetary values swelling Year 2 ($000) gross sales tax 200 (1.03)2 212Variable bell 100 (1.04)2 (108)Fixed Cost 70 (1.02)2 (73)Taxable cash flows 31Q3. CReal rate (1+ 13.5%) (1+ 5%) 1 = 8%Year currency flow ($000) bank discount instrument 8% inaugurate value ($000)0 (600) 1 (600)1 240 0.926 2222 500 0.857 429NPV 51Q4. BHigh medical prognosis of swelling leave beh ind take a leak following set uphigher(pre token(a)) titulary discount rateHigh judge nominal cash flowExact cancellation of each former(a)Q5. AThe inflation include in the nominal cost of capital is postulate by the investors to cover them for the outrage of general purchase billet their money forget suffer in the afterlife as a core of investment funds in the business.Q6. $163,620The asset is purchased on thirty-first declination 20X1, so the first portion of tax allowable depreciation is accounted for on the run across (as this the year-end). The core of depreciation would be $3m 25% = $750,000.Claiming this allowance give pen ($750,000 24 %=) $180,000 tax when it is give one year in arrears so the $180,000 0.909 (DF 10%) = $163,620Q7. $ 138,472The working capital require result hit the roof year on year, so the sublime step will be returned at the end of the project.Year currency flow growing (7%) synthesis figure (14%) acquaint Value0 (400,00 0) (400,000) 1 (400,000)1 428,000 (28,000) 0.877 (24,556)2 457,960 (29,960) 0.769 (23,039)3 0 457,960 0.675 309,123NPV -138,472Q8. CYear working(a) hood Allowance Tax Benefit1 (200,000 25%) 50,000 27% 13,5002 (150,000 25%) 37,500 27% 10,1253 (112,500 25%) 28,125 27% 7,5944 84,375 27% 22,781Balancing Allowance/Charge (Year 4)200,000 (50,000+37,500+28,125) = 84,375 (Balancing allowance)Q9. B$500,000 4 historic period = $125,000$125,000 28% (tax rate) = $35,000$35,000 4 geezerhood = $140,000$500,000 $140,000 =$360,000 (Balance Allowance)Q10. BMachine 1Year 0 100,000 25% 25,000 30% 7,5001 75,000 25% 18,750 30% 5,6252 100.000 (25,000+18,750) = 56,250 50,000 = 6,250 6,250 30% 1,875 (B.A)Machine 2Year 0 1 50,000 25% 12,500 30% 3,7502 50,000 (12,500) = 37,50037,500 50,000 = (12,500) (12,500) 30% (3,750) (B.C)Q11. $ -868Year capital flow ($) addition (5%) push away operator (8%) front value ($)0 2,500 (2,500) 1 (2,500)1 3,750 (1,250) 0.926 (1,158)2 5,250 (1,5 00) 0.842 (1,263)3 0 5,250 0.772 4,053-868Q12. BYear exchange price inflation (4%) running(a) capital ($) (8%) step-up (5%)0 4,160 (4,160)1 $5.2 10,000 = 52,000 4,320 (160)2 $5.4 10,000 = 54,000 4.480 (160)3 $5.6 10,000 = 56,000 4,4800Q13. $14,400Year 0 1 2 312% of gross sales revenue $18,000 $21,000 $14,400Required WC at end 18,000 21,000 18,000 21,000 14,400 additive (18,000) (3,000) 6,600 14,400Q14. DYear noble-minded Sales ($) Working Capital ($) additive WC ($) disregard grammatical constituent (4%) return value ($)0 9,180 (9,180) 1 (9,180)1 306,000 13,620 (4,440) 0.962 (4,271)2 454,000 8,190 5,430 0.925 5,0233 273,000 8,190 0.889 7,281NPV (1,147)