The ABC Ltd is analysing the costs and benefits of setting up an extra fast-food outlet in Adelaide. The predicted costs and income flows are provided below: $2 million site acquisition and development costs. The capital depreciation expense is $50,000 per year. Investment in plant and equipment of $600,000. The plant and equipment have an estimated useful life of 5 years and the residual value would be zero. The plant and equipment will be depreciated on a straight-line basis for tax purposes. The forecasted sales in year 1 is $600,000 and $800,000 per year thereafter. Labour and material costs are equivalent to 50 per cent of incremental sales. The policy (objective) is to sell the outlet at the end of year 3. The estimated selling price is $3.5 million. Sales in a similar outlet of ABC Ltd will decline by $80,000 per year due to loss of customers and experienced staff to the new venture. Other operating costs are about $150,000 per year (fixed) The net working capital requirement at the beginning of each period (y
The ABC Ltd is analysing the costs and benefits of setting up an extra fast-food outlet in Adelaide. The predicted costs and income flows are provided below:
$2 million site acquisition and development costs. The capital depreciation expense is $50,000 per year.
Investment in plant and equipment of $600,000. The plant and equipment have an estimated useful life of 5 years and the residual value would be zero. The plant and equipment will be depreciated on a straight-line basis for tax purposes.
The forecasted sales in year 1 is $600,000 and $800,000 per year thereafter.
Labour and material costs are equivalent to 50 per cent of incremental sales.
The policy (objective) is to sell the outlet at the end of year 3. The estimated selling price is $3.5 million.
Sales in a similar outlet of ABC Ltd will decline by $80,000 per year due to loss of customers and experienced staff to the new venture.
Other operating costs are about $150,000 per year (fixed)
The net working capital requirement at the beginning of each period (year) is 10 per cent of incremental annual sales (
All cash flows are expressed in real terms and the corporate tax rate is 30 per cent. The company real discount rate is 15 per cent per year.
Assuming that ABC Ltd has positive tax liabilities (i.e. profitable) for the next three years, determine the
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