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Calculating net cash flows over a five year period

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Calculating net cash flows over a five year period

  • This topic has 0 replies, 1 voice, and was last updated 4 years ago by pinkp@nther.
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  • November 13, 2020 at 2:46 pm #594904
    pinkp@nther
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    If a question does not give you net cash flows for a five year period, in order to conduct an investment appraisal, how does one use the information provided to calculate the net cashflows for the 5 years. With the below information, I get a net cashflow of R940 000 for Year 1, so does that mean it will be 940 for Years 2 – 5 as well? Feels like I am missing something.

    The machine will cost R2,000,000 and is expected to have a useful life of 5 years, with no salvage value. The machine is expected to increase revenues by R840,000 per year but operating costs will increase by R300,000 per year. The average annual profit is estimated at R140 000. The company desires a minimum required rate of return of 12%.

    And for this one, they provide net profits – I don’t know how to get to a five year net cashflow with this information. Please assist.
    you are required to analyse two proposed capital investments, namely Projects N and O. Each has a cost of R100000, and the cost of capital for each project is 12%. Depreciation on each project is estimated at R25000 per year. The projects’ expected net profit (loss) are in the table.

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