Case Study on Swindodn plc Research Paper Example | Topics and Well Written Essays - 1500 words

Case Study on Swindodn plc - Research Paper Example Thus, fundamentals of accounting tells us that the cost of an assets includes cash paid outright when the assets is bought plus the amounts that will be paid in the future. Such future amounts also includes interest expenses paid for the use of borrowed money(Brigham, 1985) For there are two ways to get an asset, through investment of cash and through creation of loans or long term debts or bonds. In addition, the cost of the assets includes all other cash outlay that will put such assets into operation. Meaning, the additional cost includes trial runs, hauling or delivery expenses to deliver the drills from the supplier's warehouse to the purchaser's factory or place of business(Ross, 1996). For, the cost of capital here includes the drill and platform cost of 14,000,000 and the 1,000,000 additional costs. Evidently, the cost of amount that the company will have to pay in order to put the long term investment into operation. The prior accelerated cost recovery system had been the product of the economic recovery tax act of 1981. Also, the MACRS was a complete going away from the prior tax depreciation procedures instituted by fundamentals of financial accounting. Meaning, the prior depreciation methods took cognizance of including the salvage value or scrap value of the assets(Ross, 1996). The prior depreciation methods include the straight line method, the sum of the years digits, the double declining method, the 150 percent declining method, the units of production method, the hours of production used method and tools expense methods among others. This prior system that had been closely similar to the financial accounting depreciation methods has now been changed to mechanical computation called MACRS. Distinctly, the MACRS c) The project's Operating Cash Flows (inflows) (15 marks) Cash inflows Year Cash inflows 1 3,500,0000.88503,097,500 2 4,000,000 0.7831 3,132,400 3 6,000,000 0.6931 4,158,600 4 8,000,000 0.6133 4,906,400 5 12,000,000 0.5428 6,513,600 Total for 5 yrs 33,500,00021,808,500 Less depreciation 5 yrs 14,130,000 Cash inflows before tax 7,678,500 Tax 40% 3,071,400 Cash inflows after tax 4,607,100 Add back depreciation14,130,000 Cash inflows 18,737,100The cash inflow for the first year is 3,500,000 multiplied by the present value factor of 1 of .8850 results to cash inflow of 3,097,500. on the second year, the 4,000,000 multiplied by the present value factor of 1 of .78831 results to cash inflow of 3,132,400. on the third year, 6,000,000 multiplied by the present value factor of 1 of .6931 results to cash