Calculate terminal cash flow for the following data. A company’s initial investment is Rs.25000000/-, they having an equipment whose life is 8 years with a book value of Rs.375000/-. Company financial analyst says, it can be disposed for RS.500000/-. Working capital of Rs.500000/- can be recovered after 8 years. Tax rate is 25%.

Question

Calculate terminal cash flow for the following data. A company’s initial investment is Rs.25000000/-, they having an equipment whose life is 8 years with a book value of Rs.375000/-. Company financial analyst says, it can be disposed for RS.500000/-. Working capital of Rs.500000/- can be recovered after 8 years. Tax rate is 25%.

Banking & FinanceFinance ManagementGrowth & Empowerment

---

---

Solution

The solution is as follows −

Initial investment = Rs. 25000000/-
Disposed value by analyst = Rs.500000/-
Book value = Rs.375000/-
Tax rate = 25%

• Tax rate for disposal => (500000 – 375000) * 25%

                    => 125000 * 25%

                    => Rs.31250/-

• After deducting taxes => 500000 – 31250

                    => Rs.468750/-

Terminal cash flows = after deducting taxes + working capital recovered

                    => 468750 + 500000

                    => Rs.968750/-

Mandalika

Published on 26-Sep-2020 16:59:42

Previous Page Print Page

Next Page  

Advertisements