Cash Flow Analysis

FM – L2 – Q73 – Discounted Cash Flow

Calculate the breakeven rate of return for Kofi's taxi service project using NPV criteria with given cash flows and costs.

Question

Kofi, after his National Service and with no hope of securing a job in the formal sector, has decided to run a taxi service. The following have been made for the operation of a service between Asikrom and Sunyasi:
(i) Revenue totalling GH¢300 a week for 52 weeks in a year. This is net of fuel and other variable costs.
(ii) Tyres; four pieces for a year at GH¢120 per unit.
(iii) Maintenance and servicing; GH¢120 per month.
(iv) Salaries GH¢3,000 per year.
(v) Insurance GH¢350 per year.
The net cash flow will increase at 5% per annum for the next five years due to inflation. The cost of the vehicle is estimated at GH¢28,000. The project appears quite profitable based on the NPV criteria using the Government policy rate of 26%. However, the banks are offering rates far higher than the policy rate.

Required:
Calculate the breakeven rate of return for the project.

Answer

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Tags: Capital Budgeting, Cash Flow Analysis, Discounted cash flow, Internal Rate of Return, Net Present Value
Level: Level 2

Topic: Discounted cash flow

FA – L1 – Q98 – Statement of cash flows

Prepare a statement of cash flows for Tango Limited for 20X9 using the direct method, based on provided financial statements.

Question

The following information has been extracted from the financial statements of Tango Limited for the year ended 31 December 20X9.

Statement of profit or loss for the year ended 31 December 20X9

GH¢	GH¢
Sales
Cost of sales
Gross profit
Loss on disposal of non-current asset	(4,000)
Wages and salaries	(137,000)
Other expenses (including depreciation GH¢46,000)	(193,000)
Interest charges	(19,000)
Profit before tax
Tax on profit
Profit after tax

The asset disposed of had a carrying amount of GH¢31,000 at the time of the sale.

Extracts from the statements of financial position:

	At 1 January 20X9	At 31 December 20X9
	GH¢	GH¢
Non-current assets	157,000	142,000
Inventory	42,000	45,000
Receivables	43,600	51,000
Cash and cash equivalents	4,000	11,200
Trade payables	45,000	41,000
Taxation payable	10,000	12,000
Interest payable	3,000	2,000

Note on non-current assets

	Land and buildings	Machinery	Fixtures & fittings	Total
	GH¢000	GH¢000	GH¢000	GH¢000
Cost or valuation
At 31 December 20X8	830	470	197	1,497
Additions	–	43	55	98
Disposals	–	(18)	–	(18)
Adjustment on revaluation	70	–	–	70
At 31 December 20X9	900	495	252	1,647
Depreciation
At 31 December 20X8	(90)	(270)	(180)	(540)
Charge for the year	(10)	(56)	(8)	(74)
Disposals	–	12	–	12
Adjustment on revaluation	100	–	–	100
At 31 December 20X9	0	(314)	(188)	(502)
Carrying amount:
At 31 December 20X8	740	200	17	957
At 31 December 20X9	900	181	64	1,145

You have been informed that included within distribution costs is GH¢4,000 relating to the loss on a disposal of a non-current asset.

Required
Prepare a statement of cash flows for Tango Limited for the year ended 31 December 20X9.

Answer

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Tags: Cash Flow Analysis, Direct Method, Financial Statements, Financing Activities, Interest Payments, Investing Activities, Non-current Assets, Operating Activities, Statement of Cash Flows, Taxation
Level: Level 1

Topic: IAS 7: Statement of cash flows

Tag (SQ): Cash Flow Analysis

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FM – L2 – Q73 – Discounted Cash Flow

Calculate the breakeven rate of return for Kofi's taxi service project using NPV criteria with given cash flows and costs.

FA – L1 – Q98 – Statement of cash flows

Prepare a statement of cash flows for Tango Limited for 20X9 using the direct method, based on provided financial statements.

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Tag (SQ): Cash Flow Analysis

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FM – L2 – Q73 – Discounted Cash Flow

Calculate the breakeven rate of return for Kofi's taxi service project using NPV criteria with given cash flows and costs.

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FA – L1 – Q98 – Statement of cash flows

Prepare a statement of cash flows for Tango Limited for 20X9 using the direct method, based on provided financial statements.

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