Given below cash flows details of a project: Period012345Demand (in units) 4000045000420003800030000Initial Investment in million-100 Sales 40,000*1000)/1000000 40 45423830Selling price per unit Rs. 1000 Variable cost per unit Rs. 300 per unit Fixed Cost Rs. 10 million Depreciation 25% written down value Resale price (in million) 110100905030 Corporate tax rate 35%, capital gain tax 20%Required:You are required to estimate cash flows and decide the period in which project should be abandoned.

Income Statement is the summary of revenues received and expenses incurred in a financial year…

Answered: Given below cash flows details of a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Given below cash flows details of a project:

Period	0	1	2	3	4	5
Demand (in units)		40000	45000	42000	38000	30000
Initial Investment in million	-100
Sales 40,000*1000)/1000000		40	45	42	38	30
Selling price per unit Rs. 1000
Variable cost per unit Rs. 300 per unit
Fixed Cost Rs. 10 million
Depreciation 25% written down value
Resale price (in million)		110	100	90	50	30

Corporate tax rate 35%, capital gain tax 20%

Required:

You are required to estimate cash flows and decide the period in which project should be abandoned.

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

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