The report has been prepared with an intention to analyse the feasibility of proposed expansion strategy with directors of Rob’s Furniture Restoration Limited (RFR), a family owned business with 3 directors on board. The company is seeking an opportunity to expand its business and has accordingly consulted the Accounts team to conduct a feasibility study of the project and comment on the same. The feasibility study has been annexed to the report and the project is feasible based on the calculations detailed in annexure. The Net Present value stands at $ 1,234,455.
The assumptions under the said computation have been detailed here-in-below:
- Trip cost is sunk cost and $37,500 has not been considered;
- Reimbursed expenditure is not considered ;
- Staff salary of 3 additional staff is considered;
- Increase in salary takes place from second year;
- The price offered by other party for the property in Hornsby is not taken into consideration;
- The sale value of premise includes the sale price of building and has not been considering separately;
- The increase in working capital is realised at the end of the period.
|
Sl No |
Particulars |
Year 0 |
Year 1 |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
Terminal Value |
|
1 |
Increased Revenues |
750000 |
780000 |
840000 |
900000 |
960000 |
||
|
2 |
Cancellation Agreement (Net of Tax) |
-4900 |
||||||
|
3 |
Increase in Maintenance cost |
6700 |
6834 |
6970.68 |
7110.094 |
7252.295 |
||
|
4 |
Land Cost |
-2430000 |
||||||
|
5 |
Cost of Equipment |
-260000 |
||||||
|
6 |
Training Cost (Net of Tax) |
-39200 |
||||||
|
7 |
Wage Cost for 3 employees |
224100 |
229702.5 |
235445.1 |
241331.2 |
247364.5 |
||
|
8 |
Valuation of Premise post 5 Year |
4250000 |
||||||
|
9 |
Depreciation of old equipment |
3600 |
3600 |
3600 |
3600 |
3600 |
||
|
10 |
Depreciation of New Equipment |
37000 |
37000 |
37000 |
37000 |
37000 |
||
|
11 |
Saving in Rent Cost |
85000 |
85000 |
85000 |
85000 |
85000 |
||
|
12 |
Depreciation on Building |
66500 |
61845 |
57515.85 |
53489.74 |
49745.46 |
||
|
13 |
Increase in Working Capital |
45000 |
1800 |
3600 |
3600 |
3600 |
57600 |
|
|
14 |
Residual Value of Machine |
75000 |
||||||
|
15 |
Net Cash flow before Tax |
-2734100 |
282100 |
354218.5 |
410868.4 |
468869 |
526437.8 |
4382600 |
|
16 |
Tax Impact |
84630 |
106265.6 |
123260.5 |
140660.7 |
157931.3 |
39780 |
|
|
17 |
Cash Flow Post Tax |
-2734100 |
197470 |
247953 |
287607.9 |
328208.3 |
368506.4 |
4342820 |
|
18 |
Depreciation (Add Back) |
107100 |
102445 |
98115.85 |
94089.74 |
90345.46 |
||
|
19 |
Net Cash flow |
304570 |
350398 |
385723.7 |
422298 |
458851.9 |
4342820 |
|
|
20 |
Discounting Factor |
1 |
0.900901 |
0.811622 |
0.731191 |
0.658731 |
0.593451 |
0.593451328 |
|
21 |
Present Value of Cash Flows |
-2734100 |
274387.4 |
284390.8 |
282037.9 |
278180.8 |
272306.3 |
2577252.297 |
|
22 |
Net Present Value |
1234455.451 |
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