TUGAS KE 2

SOAL 1.

A simplified hypothetical accounting income statement for XYZ Company is given below.
Income Statement for XYZ Company, year ending 31 December 2002 ($ millions)
Sales 45,000
Cost of goods sold 14,000
Other expenses 350
Selling, general and administrative expenses 12,455
Depreciation 2,500
Earnings before interest and taxes (EBIT) 15,695
Interest expense 495
Taxable income 15,200
Tax payable @ 30% 4,560
Net income (after tax) 10,640
Further information:
Sales: It is reasonable to assume that approximately 50% of sales are on credit. The credit
terms are 90 days. For simplicity, assume all credit customers take the full 90 days to
pay.
Cost of goods sold: In addition to the cost of goods sold given in the table, inventories
increased $60 million in this year.
Selling, general, administrative and other expenses: The XYZ Company has 90 days to pay
on all accounts and the company takes full advantage of this facility.

Question :

1. What is the difference between the ‘sales’ in this financial statement and in what would
be recorded as a project’s cash flow? What is the cash inflow from sales for XYZ?
2. How is the ‘cost of goods sold’ recorded in financial statements? Can the cost of goods
sold and its cash flow be easily reconciled? Is it really necessary to reconcile these two in
order to arrive at cash outflow related to cost of goods sold for project cash flow
analysis?
3. What is the cash flow related to the ‘selling, general, administrative and other expenses’
of XYZ?
4. Distinguish between ‘accounting depreciation’ and ‘tax-allowable depreciation’ and
explain why only tax-allowable depreciation has implications for project cash flows.
5. What is ‘EBIT’ and why is it not used in project cash flows?
6. Why is ‘interest expense’ and its tax savings not included in project cash flow analysis?
7. In the context of project cash flow analysis, define ‘taxable income’.
8. Define ‘tax payable’ in the context of project cash flow analysis.
9. Define ‘net income’.
10. Derive the year’s cash flow from the XYZ Income Statement after considering the points
discussed in the answers to previous par
SOAL 2

Kajukotuwa Corporation is considering the purchase of a new item of equipment to replace

the current one. The new equipment will cost $100,000 and requires $7,000 in installation
costs. It will be depreciated using the straight line method over a five-year period. The old
equipment was purchased for $40,000 five years ago. It was being depreciated using the
straight line method over a five-year economic life. The old machine’s market value today is
$45,000. As a result of the proposed replacement the corporation’s investment in working
capital is expected to increase by $12,000. The tax rate is 30%.
(a) Calculate the book-value of the old machine.
(b) Calculate the taxes, if any, attributable to the sale of the old machine.
(c) Determine the initial investment associated with the proposed equipment
replacement.