Strategic Financial Management

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STRATEGIC FINANCIAL MANAGEMENT

Strategic Financial Management

Strategic Financial Management

Project Details:

The LSC Corporation is planning to invest in a Machinery that costs 100,000 pounds.

Its operational life is 08 years (will be scrapped thereon).

Annual Revenues 70,000 pounds from year 1 to year 8,

Annual Fixed Costs 50,000 pounds from year 1 to year 8,

Salvage Value is 5,000 pounds from year 1 to year 8,

Cost of Capital 10%,

Tax rate 36%

Cash-flows over the year:

Year 1: 10,000

Year 2: 18,000

Year 3: 14,400

Year 4: 11,520

Year 5: 9,216

Year 6: 7,373

Year 7: 5,898

Year 8: 4,718

Q1. Calculate the total present value of the project's cash flows.

Year

Cash-flows

Earnings After Tax

0

(100,000)

1

10,000

12,800

2

18,000

12,800

3

14,400

12,800

4

11,520

12,800

5

9,216

12,800

6

7,373

12,800

7

5,898

12,800

8

4,718

12,800

Total

81,125

102,400

Total present value of the ...
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