![]() ![]() ![]() However, on the answer sheet it states that :Ĭalculations are done on a nominal basis, converting the salvage value estimate from a real to a nominal value (638) using the 5% inflation estimate salvage = book value so no taxes are incurred on salvage. ![]() I know that the inflation rate is 5% and that the nominal interest rate is 12%.Īccording to my knowledge i would need to multiply the real cash flow by 1.05, which would give me 525 and divide it by 1.12 to get 468.75. Practically, one of the first things i need to do is convert the real 500 million salvage value to nominal terms. Assume all cash flows occur at the end of each year except where otherwise stated. The plant can be depreciated straight- line over the five-year period and profits will be taxed at 25%. Hindustan’s discount rate for this type of project is 12% (nominal). The land on which the plant is built can be rented for five years at a fixed cost of RMB 300 million a year payable at the beginning of each year. Total labor costs for the plant are expected to be RMB 1.1 billion in the first year and thereafter will increase by 7% a year. Raw materials for each car are forecasted to cost RMB 18,000 in the first year and these costs are predicted to increase by 3% annually. The firm anticipates that in the first year it will be able to sell each car for RMB 65,000, and thereafter the price is expected to increase by 4% a year. The plant will produce 100,000 cars a year. Remeasurement is the process of remeasuring or converting financial statement amounts that are denominated in another currency to the entity’s functional currency. It is expected to last for five years and have a salvage value at the end of this period of RMB 500 million in real terms. That’s 42,500 we can spend right now, if need be. Even though our net income listed at the top of the cash flow statement (and taken from our income statement) was 60,000, we only received 42,500. 1 This trend may be worrisome for investors expecting an adverse impact on stock returns once the bill for all this spending comes due. At the bottom of our cash flow statement, we see our total cash flow for the month: 42,500. This will involve an initial investment of RMB 4 billion.14 The plant will start production after one year. As of the end of 2020, the US debt held by the public amounted to 22 trillion, an increase of approximately 5 trillion from the year before and well over double the level from a decade ago. As the company’s website explains, the Ambassador’s “dependability, spaciousness, and comfort factor have made it the most preferred car for generations of Indians.” Hindustan is now considering producing the car in China. Translation adjustments that arise from consolidating that foreign operation do not impact cash flows and are not included in net income. Hindustan Motors has been producing its Ambassador car in India since 1948. (This is the whole question, you can skip it if you want) ![]()
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