A concrete fabricating machine was purchased 10 years ago for $75,000 with an es

Question

A concrete fabricating machine was purchased 10 years ago for $75,000 with an estimated life of 15 years and $15,000 salvage, when it was purchased, $25,000 was borrowed at 8% per year with the remaining $50,000 from equity capital. The loan is being paid off using a conventional 15 year end of year payment schedule. Straight- line depr has been used. This machine produces concrete at the rate of 100 tons per 3.64 hours, and has an efficiency rating of 83%. The machine requires 3 operators paid a wage rate last year of $14.76 per hour. The machine is run on one shift only, (2000 hours regular time) with overtime scheduled as necessary. Demand averages 50.000 tons per year. Overtime pay is 50% greater than the base rate. Labor costs are increasing at 5.3% per year. The concrete sold last year for $2.60 per ton. Future price increases are expected to average 6.5% per year. Maintenance last year was $4500. The machine can be kept running but maintenance will increase by 14% per year. The current market value for this machine is $34,000. Tax rates are 40% on ordinary income and 20% on capital gains income. Inflation is expected to be 4.2%, 4.8%, and 5.2% for the next 3 years. Assume the machine will be sold in three years for $5000. Complete the cash flow table and calculate io, the real return on the equity capital.

Explanation / Answer

Cash flow statement shows how much cash is generated and used during a given period. It is one of the financial statement. It includes (I) operating activities (II) investing activities and (III) financing activities of a company. The cash provided from or used by each of the three activities will be summed to find out the change in the cash for the period. It begins with opening balanc of cash and ends with closing balance of the year.

In the above problem all necessay data are not given. From the given details purchase of livestock is both an expense and outflow cash.

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