# Annual Net Cash Flow

What will be the net cash flow in below example - (My Calculation -

-760 330 370 540 260 290 )

Prospect Limited is considering investing in some new plant. The plant would cost £1,000,000 to implement, it would last 5 years, and it would then be sold for £50,000. The relevant profit and loss accounts for each year during the life of the project are as follows:

Year to 31 March 20X1 20X2 20X3 20X4 20X5 £000 £000 £000 £000 £000 Sales 2000 2400 2800 2900 2000 Less: Cost of goods sold Opening stock – 200 300 450 350 Purchases 1600 1790 2120 1960 1110 1600 1990 2420 2410 1460 Less: Closing stock 200 300 450 350 50 1400 1690 1970 2060 1410 Gross profit 600 710 830 840 590 Less: Expenses 210 220 240 250 300 Depreciation 190 190 190 190 190 400 410 430 440 490 Net profit 200 300 400 400 100 Taxation 40 70 100 100 10 Retained profits 160 230 300 300 90

1. All sales are made and all purchases are obtained on credit terms.

2. Outstanding trade debtors and trade creditors at the end of each year are expected to be as follows:

Year Trade debtors Trade creditors £000 £000 20X1 200 250 20X2 240 270 20X3 300 330 20X4 320 300 20X5 400 150

1. Expenses would all be paid in cash during each year in question.

2. Taxation would be paid on 1 January following each year end.

3. Half the plant would be paid for in cash on 1 April 20X0, and the remaining half (also in cash) on January 20X1. The resale value of £50,000 will be received in cash on 31 March 20X6.

Too difficult to decipher.

Please post again line by line.

In any case, use FCFF for net cash flow, IIRC it is

NetIncome + NonCashCharges + (1-TaxRate) * Interest - CapEx - OpEx

In your example, for each year

NetIncome = net profit

NonCashCharges = depreciation

TaxRate = taxation / gross profit

Interest - may be 0, may be hiding in the Expenses

CapEx - may be 0, may be hiding in the balance sheet (end net PPE - beginning net PPE)

OpEx = closing stock + purchases - opening stock

Work through the examples in the book.

Hi ,

Need solution for the below problem

Prospect Limited is considering investing in some new plant. The plant would cost £1,000,000 to implement, it would last 5 years, and it would then be sold for £50,000. The relevant profit and loss accounts for each year during the life of the project are as follows:

Year to 31 March

20X1

20X2

20X3

20X4

20X5

£000

£000

£000

£000

£000

Sales

2000

2400

2800

2900

2000

Less: Cost of goods sold

Opening stock

200

300

450

350

Purchases

1600

1790

2120

1960

1110

1600

1990

2420

2410

1460

Less: Closing stock

200

300

450

350

50

1400

1690

1970

2060

1410

Gross profit

600

710

830

840

590

Less: Expenses

210

220

240

250

300

Depreciation

190

190

190

190

190

400

410

430

440

490

Net profit

200

300

400

400

100

Taxation

40

70

100

100

10

Retained profits

£160

£230

£300

£300

£90

_ _

_ _

Year

£000

£000

20X1

200

250

20X2

240

270

20X3

300

330

20X4

320

300

20X5

400

150

• All sales are made and all purchases are obtained on credit terms.

• Outstanding trade debtors and trade creditors at the end of each year are expected to be as follows:

• Expenses would all be paid in cash during each year in question.

• Taxation would be paid on 1 January following each year end.

• Half the plant would be paid for in cash on 1 April 20X0, and the remaining half (also in cash) on January 20X1. The resale value of £50,000 will be received in cash on 31 March 20X6.

Requirements:

• Calculate the annual net cash flow arising from the purchase of this new plant.

• If the cost of capital is 8%, evaluate the proposed investment using the following techniques:

• Payback,

• Return on Investment,

• Net Present Value,

• Discounted Net Present Value,

• Internal Rate of Return.

id go with C

Hi Recho,

Need your help in solving the full problem

Prospect Limited is considering investing in some new plant. The plant would cost £1,000,000 to implement, it would last 5 years, and it would then be sold for £50,000. The relevant profit and loss accounts for each year during the life of the project are as follows:

Year to 31 March

20X1

20X2

20X3

20X4

20X5

£000

£000

£000

£000

£000

Sales

2000

2400

2800

2900

2000

Less: Cost of goods sold

Opening stock

200

300

450

350

Purchases

1600

1790

2120

1960

1110

1600

1990

2420

2410

1460

Less: Closing stock

200

300

450

350

50

1400

1690

1970

2060

1410

Gross profit

600

710

830

840

590

Less: Expenses

210

220

240

250

300

Depreciation

190

190

190

190

190

400

410

430

440

490

Net profit

200

300

400

400

100

Taxation

40

70

100

100

10

Retained profits

£160

£230

£300

£300

£90

_ _

_ _

Year

£000

£000

20X1

200

250

20X2

240

270

20X3

300

330

20X4

320

300

20X5

400

150

• All sales are made and all purchases are obtained on credit terms.

• Outstanding trade debtors and trade creditors at the end of each year are expected to be as follows:

• Expenses would all be paid in cash during each year in question.

• Taxation would be paid on 1 January following each year end.

• Half the plant would be paid for in cash on 1 April 20X0, and the remaining half (also in cash) on January 20X1. The resale value of £50,000 will be received in cash on 31 March 20X6.

Requirements:

• Calculate the annual net cash flow arising from the purchase of this new plant.

• If the cost of capital is 8%, evaluate the proposed investment using the following techniques:

• Payback,

• Return on Investment,

• Net Present Value,

• Discounted Net Present Value,

• Internal Rate of Return.

Much better.

Hi parimalk

I worked out i got the below answers please let us know is it correct

Calculation of net cash flows:

Cash receipts

1 2 3 4 5

Trade debtors 1800 2360 2740 2880 1920

sale of plant - - - - -

cash payments

purchas of plnt 500 - - - -

trade creditors 1350 1770 2160 1990 1260

expenses 210 220 240 250 300

taxation - 40 70 100 100

net cash flows 260 330 270 540 260

Hi ,

I worked out i got the below answers please let us know is it correct

Calculation of net cash flows:

Cash receipts

1 2 3 4 5

Trade debtors 1800 2360 2740 2880 1920

sale of plant - - - - -

cash payments

purchas of plnt 500 - - - -

trade creditors 1350 1770 2160 1990 1260

expenses 210 220 240 250 300

taxation - 40 70 100 100

net cash flows 260 330 270 540 260