Management Accounting 2 Group Assignment
Q1,
Step 1:CA for a specialist machine Year CA WDV $ $ 0 180,000 1 (180,000*25%)45000 135,000 2 (135,000*25%)33750 101,250 3 (101,250*25%)25313 75,937
Step 2:Calculation of Corporation tax Year 1 2 3 $ $ $ Sales revenue 190,000 190,000 190,000 (-) Materials 70.000 73,500 77,175 (-) Labor 40,000 42,000 44,100 Operating cash flow 80,000 74,500 68,725 (-) CA 45,000 33,750 25313+75937=101,250 Taxable Profits 35,000 40,750 (32,525) Corporation Tax@33% 11,550 13,447.5 (21,792)
Step 3:Calculation NPV Year 1 2 3 4 $ $ $ $ Operating cash flow 80,000 74,500 68,725 (-) Tax - 11,550 13,447.5 0 Net Cash flow 80,000 62,950 55277.5 0 PV 67,797 45,210 33,644 0 Total PV 146,451 - Io 180,000 NPV= (33,349)
NPV is negative, so reject the project.
Q2,
The financial director’s approach to calculate the corporate taxes is different compared to that of the production director’s. The pre-tax profits of the two approaches are different which lead to different after-tax profits. The methods for depreciation are different. That is：
1. Their depreciation methods are different. Depreciation is the reduction in the book value of an asset due to usage
Step 1:CA for a specialist machine Year CA WDV $ $ 0 180,000 1 (180,000*25%)45000 135,000 2 (135,000*25%)33750 101,250 3 (101,250*25%)25313 75,937
Step 2:Calculation of Corporation tax Year 1 2 3 $ $ $ Sales revenue 190,000 190,000 190,000 (-) Materials 70.000 73,500 77,175 (-) Labor 40,000 42,000 44,100 Operating cash flow 80,000 74,500 68,725 (-) CA 45,000 33,750 25313+75937=101,250 Taxable Profits 35,000 40,750 (32,525) Corporation Tax@33% 11,550 13,447.5 (21,792)
Step 3:Calculation NPV Year 1 2 3 4 $ $ $ $ Operating cash flow 80,000 74,500 68,725 (-) Tax - 11,550 13,447.5 0 Net Cash flow 80,000 62,950 55277.5 0 PV 67,797 45,210 33,644 0 Total PV 146,451 - Io 180,000 NPV= (33,349)
NPV is negative, so reject the project.
Q2,
The financial director’s approach to calculate the corporate taxes is different compared to that of the production director’s. The pre-tax profits of the two approaches are different which lead to different after-tax profits. The methods for depreciation are different. That is：
1. Their depreciation methods are different. Depreciation is the reduction in the book value of an asset due to usage