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Calculation - Assignment Example

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Therefore, the after tax amount received from selling the old ATM machine is then subtracted from the amount required to pay for the installation of new ATM machine will lead to the figure of Net Investment
The bank will receive the current market price by selling old ATM…
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The incremental revenue is the increased amount of revenue, which is solely linked to the additional revenue generated from the installation of the New ATM machines. The installation is subject to increase in revenue by $300,000 at the end of the first year of installation. Therefore, the amount of $300,000 is shown in year 1. The revenues have shown a constant growth rate of 5% from second year onwards. Therefore, the increased amount of revenues has been incorporated while calculating the cash flows of the project.
Therefore, the increase in the Net working capital is subject to the cash outflow. In other words, purchase of inventory increases the current assets and also increases the net working capital of the organization but the increase in inventory requires cash outflow. On the other hand, the reduction in net working capital implies the increase in the cash inflow. The reason is that the increase in current liability implies increase in short term borrowing. The increase in short term borrowing is subject to reduction in net working capital but increase in cash inflow. Therefore, the reduction in net working capital increases the cash inflows, which is then added to the incremental revenues. The net working capital has shown the increasing trend with a constant growth rate of 6%. The incorporation of the growth rate of net working capital increases its value and reduces the incremental revenues by such increased amounts of net working capital.
The annual maintenance cost is $10,000 at the beginning of the project and shows the increasing trend with constant growth rate of 5% each year. The incremental cost is then subtracted from the incremental revenues each ...Download file to see next pagesRead More
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