FM CAPITAL

APPRAISAL _TAX
INFLATION_WC

Quitongo plc is considering a major investment programme which will involve the creation of a
chain of retail outlets throughout the United Kingdom.
The following schedule of expected cash flows has been prepared for analysis.
Time 0 1 2 3 4

£’000 £’000 £’000 £’000 £’000

Gross Revenue 1,000 1,750 2,500 3,200

Direct Costs 970 1,350 1,700 1,800

Office Overheads 100 100 100 100

Quitongo plc has an accounting year end of 31 December.

Additional information:

(a) 40% of office overhead is an allocation of head office operating costs. ONLY 60%

(b) The cost of investments includes £750,000 for fittings &equipment. Tax allowable depreciation is
available on fittings and equipment only at 25% on a reducing balance basis.
(c) Quitongo plc expects the resale proceeds for the fittings equipment will be £200,000.

(d) Post tax cost of capital is 7%

Quitongo plc is paying tax at 30% and is expected to do so for the foreseeable
future.
Tax is payable one year after profits are earned.
Capital allowances are not available on land and buildings. YES MUST WORK OUT CAPITAL ALLOWANCE /TAD FOR
FITTINGS

Expenditure on the investment programme will take place in January.

Quitongo plc expects the following working capital requirements during each of the four years of

the investment programme. (All figures in £’000s)

Year 1 Year 2 Year 3 Year 4

250 300 375 400

Required
Show workings below for the relevant working capital flows for the DCF calculation, and complete

the NPV using the suggested layout from BPP text or workbook.
TIME 0 1 2 3 4

Sales

Direct costs

Taxable CF
Operational CF

TAXATION( %)

Capital Exp
Investment cost
FittingsEquip

WC