Q1.docx - Year Operating cash flows Less Interest Less...

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Year 0 1 2 3 4 5 $000 $000 $000 $000 $000 $000 Operating cash flows 3,210 3,435 3,675 3,932 4,208 Less: Interest 12% 60 60 60 60 60 Less: capital allowances 1000 1000 1000 1000 1000 Taxable profit (total) 2150 2374.7 2615.1 3 2872.3 9 3147.6 6 Less: Profit tax 22% 473 522.434 575.33 631.93 692.48 Total 1677 1852.26 6 2039.8 0 2240.4 6 2455.1 7 Add back CAs 1000 1000 1000.0 0 1000.0 0 1000.0 0 Total 2677 2852.26 6 3039.8 0 3240.4 6 3455.1 7 Initial investment 5000 Less: Working capital 500 Loan 500 500 Sale of project 12000 Project cash flow (total) 5000 2,677 2,852 3,040 3,240 14,955 Exchange rate ($/£) 2.50 2.63 2.76 2.89 3.04 3.19 Local currency equivalent 2000 1019.81 1034.84 1050.3 6 1066.3 7 4687.1 1 Less: UK tax 41 43 45 47 49 Less: Export sales lost 83 87 90 94 97 After-tax cash flow (total) 2000 978.86 991.76 1005.1 8 1019.1 1 4637.7 8 PV factors 15% 1 0.870 0.756 0.658 0.572 0.497 PV of UK cash flows 2000 851.61 749.77 661.41 582.93 2304.9 8 NPV 7150.69 Comment: Since NPV is positive, accept the project.

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