Question

XYZ company purchased equipment with a cost basis of $10,500,000 for an eignt year project. The equipment is being depreciated using 7-year MACRS. Annual revenues are $8,000,000. Direct material costs are $2,350,000 and direct labor costs are $1,400,000. Overhead exclusive of depreciation is $970,000. Taxes are charged at 21%. The equipment is expected to be sold at the end of the project for $1,200,000. a) Complete an income statement for the project. omplete a cash flow statement for the project.

Answer 1

a) Income Statement for the project

Total Particulars Revenue Sales Revenue Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 80,00,000 80,00,000 80,00,000 80,00,000 80,00,000 80,00,000 80,00,000 80,00,000 6,40,00,000 Total Revenue 80,00,000 80,00,000 80,00,0000 80,00,000 80,00,000 80,00,000 80,00,000 80,00,000 6,40,00,000 Expenses 23,50,000 23,50,000 23,50,000 23,50,000 23,50,000 23,50,000 23,50,000 23,50,000 1,88,00,000 14,00,000 14,00,000 14,00,000 14,00,000 14,00,000 14,00,000 14,00,000 9,70,000 Direct materials cost Direct Labour costs Cash Overheads Gain on sale of Equipment Depreciation Expense MACRS 15,00,450 25,71,450 18,36,450 13,11,450 14,00,000 1,12,00,000 9,70,000 -12,00,000 4,68,300 1,05,00,000 9,70,000 9,70,000 9,70,000 9,70,000 9,70,000 9,70,000 77,60,000 -12,00,000 9,36,600 8.92% 9,37,650 8.93% 9,37,650 8.93% 12.49% 62,20,450 72,91,450 65,56,450 60,31,450 56,57,650 56,56,600 56,57,650 7,08,550 14,43,550 19,68,550 23,42,350 23,43,400 23,42,350 14.29 % 24.49% 17.49 % 4.46 % 39,88,300 4,70,60,000 40,11,700 1,69,40,000 Total Expenses Profit Before Tax Income Tax 21% Profit After Tax 17,79,550 -3,03,146 4,13,396 -3,73,706 14,05,845 -1,48,796 4,91,894 4,92,114 4,91,894 -8,42,457 -35,57,400 5,59,755 11,40,405 15,55,155 18,50,457 18,51,286 18,50,457 31,69,243 1,33,82,600

b) Cash Flow for the project

Year 2 Year 1 Year 5 Particulars Profit After Tax Year 3 Year 4 Year 6 Year 7 Year 8 Total 14,05,845 5,59,755 15,55,155 18,50,457 18,51,286- 18,50,457 11,40,405 31,69,243 4,68,300 1,33,82,600 15,00,450 25,71,450 18,36,450 Add Depreciation Less Gain on sale of Equipment Cash flow from Operating activities 13,11,450 9,37,650 9,36,600 9,37,650 1,05,00,000 -12,00,000 24,37,543 12,00,000 29,06,295 31,31,205 29,76,855 28,66,605 27,88,107 27,87,886 27,88,107 2,26,82,600 Purchase of Equipment Sale of Equipment Cash flow from Investing activities 1,05,00,000 1,05,00,000 12,00,000 12,00,000 12,00,000 1,05,00,000 93,00,000 Total Cash Flow 75,93,706 31,31,205 29,76,855 28,66,605 27,88,107 27,87,886 27,88,107 36,37,543 1,33,82,600