Question

A doll manufacturing company is thinking of purchasing a new machine

which would cost Rs.20,000 and would last for 4 years. Its expected

salvage value is zero. The company expects to sell 10,000 doll every year

at a price of Rs.4 per doll and cash expenses will be Rs.1 per toy. The

company pays 55% income tax on its income. Determine the cash

inflows after tax (CFAT). Depreciation is on Straight line basis.​

Answer 1

Answer:

CFAT  for Year 1 is - 1500

and for Year 2 is 18500

Explanation:

year 1 CFAT

10000 x( 4-1) = 30000

Tax (30000x55%) = 16500

CFAT = 30000-16500+deprecation (20000/4)

= (30000-16500+5000)

 = 18500

CFAT for Year 1 = 18500 - Purchase of Machine (20000)

= - 1500

CFAT for Year 2 = 18500