The “AFLV Logistics” company is planning to set up a new investment. The Cost of the investment is 40,000€ (it is paid for starting this investment). There is not a salvage value (resale value after depreciation is complete at the end of its useful life of the investment). Depreciation is expensed on a straight-line basis (meaning the same amount is expensed in each period over the asset’s useful life). The investment is expected to have 4 years useful life. The Total Revenues from services per year is 21,750€ (cash inflows). The Variable Cost is the direct cost of services and paid for the investment’s operation per year at the level of 6,250€ (cash outflows). The Fixed Cost comprises several selling, general and administrative expenses (SG&A) without depreciation and are paid for the investment’s operation per year 2,500€ (cash outflows). Acceptable payback period for the investment is 3 years. Last, the tax rate for the company is 20%. Using this information, you are required to: a. Calculate the gross profit and the profit or loss (after taxes) per year of the investment for the ‘AFLV Logistics’ company. b. Evaluate the investment with Simple payback evaluation technique (Assuming three decimal points). Should the company ‘AFLV Logistics’ run this investment?
The “AFLV Logistics” company is planning to set up a new investment.
The Cost of the investment is 40,000€ (it is paid for starting this investment).
There is not a salvage value (resale value after
its useful life of the investment).
Depreciation is expensed on a straight-line basis (meaning the same amount is
expensed in each period over the asset’s useful life).
The investment is expected to have 4 years useful life.
The Total Revenues from services per year is 21,750€ (
The Variable Cost is the direct cost of services and paid for the investment’s operation
per year at the level of 6,250€ (
The Fixed Cost comprises several selling, general and administrative expenses
(SG&A) without depreciation and are paid for the investment’s operation per year
2,500€ (cash outflows).
Acceptable payback period for the investment is 3 years.
Last, the tax rate for the company is 20%.
Using this information, you are required to:
a. Calculate the gross profit and the profit or loss (after taxes) per year of the
investment for the ‘AFLV Logistics’ company.
b. Evaluate the investment with Simple payback evaluation technique (Assuming
three decimal points). Should the company ‘AFLV Logistics’ run this investment?
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