- This topic has 1 reply, 2 voices, and was last updated 1 month ago by .
- You must be logged in to reply to this topic.
Congratulations to Jamil from Pakistan and Jeeva from Malaysia - Global Prize winners!
see all ACCA December 2022 Genius Hunt Competition winners >>
Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>
A company is evaluating a new product proposal that will last 6 years.
The initial outlay is $2 million. The proposed product selling price is $220 per unit and the variable costs are $55 per unit and sales are planned to be 2,750 units each year. The incremental cash fixed costs for the product will be $3,750 per annum.
What is the NPV of this project is the cost of capital is 10%.
How do I calculate the annual cash flow? I’m stuck with the ‘Fixed Costs’ part. Should it be included in the annual cash flow or excluded from it.
They are incremental (i.e. extra) cash outlows, and so should be included in calculating the annual cash flow.
So the net cash inflow each year is (2,750 x (220 – 55)) – 3,750 = $45,000.