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Tax Rate 30%

INPUT DATA
Boost Report Before Tax Value After Tax Value
Boost's Report Cost (100% deductible) $30,000 $21,000
Boost Junior Flight Cost (75% deductible) $10,000 $7,750
Accomodation, Meals and Incidentals $3,000 $5,000
Total Boost Report Cost $43,000 $33,750
Balance Cost $20,000 $14,000

New Machine Cost Value Remarks

Machine Cost $500,000 10% depreciation rate has been cons
Delivery and Installation Cost $100,000 Considered in Machine Value for dep
New Machine Total Cost $600,000 This value is taken with a life of 10 Y
Resale Value (pre-tax) $50,000 Fetchable at end of 10 year with no s
Resale Value (post-tax) $35,000 As salvage value is zero, entire resale

New Shed Cost Value Remarks

Cost of development $100,000 To be depreciated over 5 years at 20
 Remarks
Balance $20,000 will be considered after the decision is made to go ahead
He will fly the first class and hence economy class fare is ignored

To be incurred upfront, Balance $20,000 is contingent of decision

To be incurred if Project NPV is positive and more than $14,000

ciation rate has been considered which is allowed for tax purpose, PODS recommendation of 15% WDV rate is ignored
d in Machine Value for depreciation purpose as advised by ATO, PODS recommendation is ingored
is taken with a life of 10 Year for tax purpose
at end of 10 year with no salvage value
value is zero, entire resale value is capital gain and hence taxable

eciated over 5 years at 20% p.a. and wil have no salvage value
Tax Rate 30%

INPUT DATA
Boost Report Before Tax Value After Tax Value
Boost's Report Cost (100% deductible) $30,000 $21,000
Boost Junior Flight Cost (75% deductible) $10,000 $7,750
Accomodation, Meals and Incidentals $3,000 $5,000
Total Boost Report Cost $43,000 $33,750
Balance Cost $20,000 $14,000

New Machine Cost Value Remarks

Machine Cost $500,000 10% depreciation rate has been cons
Delivery and Installation Cost $100,000 Considered in Machine Value for dep
New Machine Total Cost $600,000 This value is taken with a life of 10 Y
Resale Value (pre-tax) $50,000 Fetchable at end of 10 year with no s
Resale Value (post-tax) $35,000 As salvage value is zero, entire resale

New Shed Cost Value Remarks

Cost of development $100,000 To be depreciated over 5 years at 20

Tool Cost Value Remarks

Market Value of exsiting Tool (Pre-tax) $10,000
Market Value of exsiting Tool (Post-tax) $7,000 Salvage value is zero and hence entir
New Tool cost $20,000
Net purchase cost of new Tool $13,000
Depreciation 50% Has a life of two years with no salvag

Operating Cost Value Annual Increment

Mr Harrison Annual Cost $75,000 10%
Cost of production 30%

Rent of photo library shop $10,000

Loss of Lease Rent from Neighbour to be used for new shed $18,000

Part-time employee cost implication Value Remarks

Two Employees existing salary cost $48,000 2 employees @25 hours / week for 4
Two Employees existing super annuation cost $4,560 9.5% of gross pay
Total cost saved annually $52,560 These people will not be required

Redundancy cost to these two employees (Pre-tax) $20,000 $10,000 to be paid immediately at th
Redundancy cost to these two employees (Post-tax) $14,000

Annual Sales Value Remarks

Incremental soap production - Year 1 to Year 4 (litres) 500,000 Increase from 1 million to 1.5 million
Incremental soap production - Year 5 onwards (litres) 800,000 20% increase in output. Increase from
Selling price in year 1 ($ per litre) $1
Annual increment 10%

Incremental Shampoo production (litres) 200,000 New product line

Selling price in year 1 ($ per litre) $2
Annual increment 5%

Loss of sale of soap bars $250,000 Sale of soap to fall by $250,000 per a
Annual increment 6%

Touring facility annual income $100,000 Mr Johnson will run tours of the new

Working Capital Value Remarks

Increase in working capital $100,000 The project is expected to need an in

Project Funding Remarks

Financed with debt 100%
Interest Cost 8%
Tenure (Years) 10 Bullet payment at one shot at end of

Project WACC Value Remarks

Risk-free rate 3%
Market Return 10%
Beta 1.5
Cost of Equity as per CAPM 13.50%
Cost of Debt (Post-tax) 5.60%
Debt-to-Equity 60%
Firm's WACC 10.54%
Project premium 2.50%
Project WACC 13.04%

Other Remarks
It is given that all analysis should be done in real dollars terms and hence inflation is ignored
Since the project cash flows are discounted by WACC, interest cost and debt repayment will not be considered
Given, that the project is financed 100% by debt, one can also take post-tax cost of debt as Project WACC. However, the evalu
Also machine depreciation has been considered based on straight line basis over project life of 10 years as this is also as per t
Cost of delivery and installation has been considered as per ATO advice and considered as part of capital cost and depreciatio
 Remarks
Balance $20,000 will be considered after the decision is made to go ahead
He will fly the first class and hence economy class fare is ignored

To be incurred upfront, Balance $20,000 is contingent of decision

To be incurred if Project NPV is positive and more than $14,000

ciation rate has been considered which is allowed for tax purpose, PODS recommendation of 15% WDV rate is ignored
d in Machine Value for depreciation purpose as advised by ATO, PODS recommendation is ingored
is taken with a life of 10 Year for tax purpose
at end of 10 year with no salvage value
value is zero, entire resale value is capital gain and hence taxable

eciated over 5 years at 20% p.a. and wil have no salvage value

ue is zero and hence entire market value will be capital gain and hence taxable

f two years with no salvage value. Assumed no market value at end of 10 years

Remarks
Manager of New Facility
% of net sales of soap, shampoo and soap bars
This cost has been assumed on the basis that this floor will be used for new project.
Photo library shop will be shifted else where and hence additional rent will be incrred.
Otherwise one can ignore this cost as a redundant cost assuming the same office will be utilised to manage
operation of new project and hence the existing rent cost will only be allocated and shared
Annual loss would be to the extent of $1,500 per month (the new rate) and not $1,000 per month

es @25 hours / week for 48 weeks at Rs 20 per hour

ple will not be required

be paid immediately at the time of purchase of machine to each which will be tax-deductible

om 1 million to 1.5 million litres

se in output. Increase from 1.5 million to 1.8 million litres
p to fall by $250,000 per annum and will increase by 6% p.a.

n will run tours of the new facility and these are expected to generate revenues

t is expected to need an increase in working capital from $100,000 to $200,000 initially

ment at one shot at end of 10 years.

WACC. However, the evaluation is made based on Project WACC at 13.04%

ears as this is also as per tax purpose and Mr PODS suggestion is ignored
apital cost and depreciation claimed and not expensed as adviced by Mr PODS
 Project Income Statement
Year 0 1 2 3
Boos Report Cost ($33,750)
New Machine Cost ($600,000)
New Shed Cost ($100,000)
New Tool Cost ($13,000)
Redundancy Cost ($14,000)
Increase in Working Capital ($100,000)
Total Cost ($860,750)

Annual Sales of Soap 500,000 500,000 500,000

Selling Price $1.00 $1.10 $1.21
Sales Value of Soap $500,000 $550,000 $605,000
Sales value of Shampoo $400,000 $420,000 $441,000
Loss of sale of soap bars ($250,000) ($265,000) ($280,900)
Net Core Sales (A) $650,000 $705,000 $765,100
Other income (Tours) $100,000 $100,000 $100,000
Total Revenue $750,000 $805,000 $865,100

Less: Operating Cost (30% of A) ($195,000) ($211,500) ($229,530)

Less: Manager Cost (Mr Harrison) ($75,000) ($82,500) ($90,750)
Less: Loss of Lease Rent (For Shed) ($18,000) ($18,000) ($18,000)
Less: Rent of Photo Library Shop ($10,000) ($10,000) ($10,000)
Add: Part-time employee cost savings $52,560 $52,560 $52,560
Total Cash Cost ($245,440) ($269,440) ($295,720)

EBITDA $504,560 $535,560 $569,380

Less: Depreciation - Machine ($60,000) ($60,000) ($60,000)
Less: Depreciation - Shed ($20,000) ($20,000) ($20,000)
Less: Depreciation - Tools ($6,500) ($6,500) $0

Profit Before Tax $418,060 $449,060 $489,380

Less: Tax ($125,418) ($134,718) ($146,814)
Profit After Tax $292,642 $314,342 $342,566

Project Income Statement

Year 0 1 2 3
Project Cost ($760,750)
Increase in working capital ($100,000)
Boost Pending Cost ($14,000)
Profit After Tax $292,642 $314,342 $342,566
Add: Depreciation $86,500 $86,500 $80,000
Add: Machine Resale
Add: Release of working capital
Project Cash Flows ($874,750) $379,142 $400,842 $422,566
Project NPV $2,371,553
Project IRR 52.46%
Since the Project NPV is positive and IRR is more than Project WACC, the project should be undertaken
ncome Statement
4 5 6 7 8 9 10

500,000 800,000 800,000 800,000 800,000 800,000 800,000

$1.33 $1.46 $1.61 $1.77 $1.95 $2.14 $2.36
$665,500 $1,171,280 $1,288,408 $1,417,249 $1,558,974 $1,714,871 $1,886,358
$463,050 $486,203 $510,513 $536,038 $562,840 $590,982 $620,531
($297,754) ($315,619) ($334,556) ($354,630) ($375,908) ($398,462) ($422,370)
$830,796 $1,341,863 $1,464,364 $1,598,657 $1,745,906 $1,907,391 $2,084,520
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000
$930,796 $1,441,863 $1,564,364 $1,698,657 $1,845,906 $2,007,391 $2,184,520

($249,239) ($402,559) ($439,309) ($479,597) ($523,772) ($572,217) ($625,356)

($99,825) ($109,808) ($120,788) ($132,867) ($146,154) ($160,769) ($176,846)
($18,000) ($18,000) ($18,000) ($18,000) ($18,000) ($18,000) ($18,000)
($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000)
$52,560 $52,560 $52,560 $52,560 $52,560 $52,560 $52,560
($324,504) ($487,806) ($535,538) ($587,904) ($645,366) ($708,427) ($777,642)

$606,292 $954,057 $1,028,827 $1,110,753 $1,200,541 $1,298,965 $1,406,878

($60,000) ($60,000) ($60,000) ($60,000) ($60,000) ($60,000) ($60,000)
($20,000) ($20,000) $0 $0 $0 $0 $0
$0 $0 $0 $0 $0 $0 $0

$526,292 $874,057 $968,827 $1,050,753 $1,140,541 $1,238,965 $1,346,878

($157,888) ($262,217) ($290,648) ($315,226) ($342,162) ($371,689) ($404,063)
$368,405 $611,840 $678,179 $735,527 $798,378 $867,275 $942,814

ncome Statement
4 5 6 7 8 9 10

$368,405 $611,840 $678,179 $735,527 $798,378 $867,275 $942,814

$80,000 $80,000 $60,000 $60,000 $60,000 $60,000 $60,000
$35,000
$100,000
$448,405 $691,840 $738,179 $795,527 $858,378 $927,275 $1,137,814