Q-1

The Complete Office Company

Layout and Marketing Office Furniture Office Supplies
Current Assets 200000 200000 200000
Fixed Assets 0 1000000 500000
Total Assets 200000 1200000 700000
Gross profit from Sales 400000 400000 400000
Operating Expenses 200000 100000 150000
Depriciation 0 100000 50000
PAT 200000 200000 200000
ROA 100% 17% 29%
 Budgeted After-tax
Budgeted After-tax profits (before profits (after
Year replacements) replacements
1996 3000 3300
1997 3000 3300

Budgeted Assets (Jan 1 1996) Current

Gross Book Value 12000
Net Book Value 12000

Data relevant to the new equipment

Budgeted Cost 6000
Estimated Annual After tax saving 900
Estimated Depreciable Life 10 years
Date of expected purchase 1/1/1996

Q-2
Beginning of the
year Gross Book
Value of Fixed
Year Budgeted After-tax profits Assets
1996 3000 18000
1997 3000 18000

Q-3

Budgeted After-tax
Budgeted After-tax profits (before profits (after
Year replacements) replacements
1996 3000 1500
1997 3000 3000

Q-4

Budgeted After-tax
Budgeted After-tax profits (before profits (after
Year replacements) replacements
1996 3000 3300
1997 3000 3300

Q-5
 Budgeted After-tax
Budgeted After-tax profits (before profits (after
Year replacements) replacements
1996 3000 1500
1997 3000 3000
Gross Book Value of Gross Book Value of
Assets (before Assets (after ROA (GB
replacements replacements) Net Book Value value)
30000 31500 23250 10.48%
30000 31500 21450 10.48%

Fixed Total
18000 30000
9000 21000

Data relevant to the old equipment to be replaced

Gross Book Value 4500
Depreciable life 10 years
Present Age 7 years
Depreciation taken to date 3150
Salvage value 0

Gross Book Value of

Current Assets Assets ROA(GB value)
12000 30000 10%
12000 30000 10%

Gross Book Value of Gross Book Value of

Assets (before Assets (after ROA (GB
replacements replacements) End of Year Net Book Value value)
30000 31500 23250 4.76%
30000 31500 21450 9.52%

Gross Book Value of Gross Book Value of

Assets (before Assets (after ROA (NB
replacements replacements) Net Book Value value)
30000 31500 23250 14.19%
30000 31500 21450 15.38%
Gross Book Value of Gross Book Value of
Assets (before Assets (after ROA (NB
replacements replacements) End of Year Net Book Value value)
30000 31500 23250 6.45%
30000 31500 21450 13.99%
nt to be replaced
A.
Year After tax Cash flow Beginning Value Depreciation
0 -10000000
1 2500000 10,000,000 2,000,000
2 2500000 8,000,000 2,000,000
3 2500000 6,000,000 2,000,000
4 2500000 4,000,000 2,000,000
5 2500000 2,000,000 2,000,000

B.
Av. ROA 11%

C. Year Bonus
1 $500.00
2 $625.00
3 $833.33
4 $1,250.00
5 $2,500.00

D.
IRR 8%
Incremental Income ROA

500,000 5.0%
500,000 6.3%
500,000 8.3%
500,000 12.5%
500,000 25.0%