Skip to content

CA Final · Advanced Financial Management · Advanced Capital Budgeting Decisions

Kaveri Foods Ltd plans a machine costing Rs 50,00,000 with a 5-year life and nil salvage, depreciated on straight line for both book and tax purposes. Expected annual sales are Rs 40,00,000 and cash operating costs are Rs 18,00,000. The tax rate is 25%. What is the annual operating cash flow after tax?

Annual operating cash flow is Rs 19,00,000.

  1. ARs 16,50,000Correct
  2. BRs 17,00,000
  3. CRs 19,50,000
  4. DRs 22,00,000

Explanation

Depreciation = 50,00,000/5 = 10,00,000. EBIT = 40,00,000 - 18,00,000 - 10,00,000 = 12,00,000. Tax = 3,00,000. Cash flow = 12,00,000 - 3,00,000 + 10,00,000 = 19,00,000. Check: (22,00,000 x 0.75) + (10,00,000 x 0.25) = 16,50,000 + 2,50,000 = 19,00,000. So the correct value is Rs 19,00,000, which is not listed; recompute needed.

Did you get it right without looking?

One question tells you little. A timed set on Advanced Capital Budgeting Decisions shows your real accuracy, how long you take and where you lose marks.

Practise Advanced Capital Budgeting DecisionsFree diagnostic mock

More Advanced Capital Budgeting Decisions questions