Business Analysis

Please view Attachment first. Please clarify the following:

a) Do we assume that we have sold the old trawler? If so, can we set out
the solution as follows:

Revenue $240,000

Cash Operating Costs $120,000

Depreciation $120,000

Other Project effects $ 15,000

BEFORE TAX INCOME $-15,000

Tax (33%) $ 4,950

Plus Old Trawler $140,000

NET INCOME $125,000

Plus Depreciation $120,000

Net Operating Cash Flow $249,950

Is this right??? Can you please verify my anwers for a)?

I have problems with b), c) and d). Can you provide me some assistance
please

The BFG Company purchased a trawler 6 years ago for $420,000. It is
currently being depreciated over its 10 year useful life at 10%
straight-line for tax purposes. If BFG were to retain this boat it is
anticipated that ultrasonic detection equipment would have to be
installed in the second-last year of its life at a cost of $40,000.

However, the SUG Company has recently launched a faster,
computer-assisted trawler that BFG is considering as a replacement. This
trawler will cost $600,000, but will need immediate refitting to suit
the purchaser's specifications at an additional cost of $15,000. It has
an expected useful life of 12 years and may be depreciated by the
reducing balance method at 20% for tax purposes.

If purchased, the new trawler is likely to increase cash operating costs
by $10 per tonne of fish that currently sells for $30 per tonne.
However, future catches are likely to increase significantly by 6,000
tonnes in the first year, and then at a rate of 1,000 tonnes per annum,
stabilising at 12,000 tonnes from Year 7 onwards. Due to intensive
usage, it is anticipated that towards the end of the fifth year, the new
trawler will require a minor engine overhaul at a cost of $30,000. Part
of the purchase agreement also involves a maintenance contract with SUG
covering the nets and trawling apparatus which will cost BFG $12,000,
payable at the end of every fourth year.

Any replacements / additions may be written off in the year after
acquisition for tax purposes. As a competitive strategy, SUG offers an
optional financing package for up to 80% of the invoice price on any
boat. The rate of interest on this amount is 12% per annum with the
first payment deferred one year. If the financing package is adopted,
BFG must undertake to sell the trawler back to SUG in 12 years' time for
$50,000.

BFG estimates that the current second-hand price of its present trawler
is only $140,000. It is estimated that the new trawler can be sold for
$100,000 at the end of its useful life.

The company income tax rate of 33% is applicable to both capital gains
and income. The nominal after-tax required rate of return is 30%.

Estimate the net cash flow after tax at the beginning of Year 1

Estimate the net cash flow after tax in Year 4

Management believes that relative to today's prices the average
inflation rate is expected to be 8% per annum over the next 12 years.
What is the Year 3 inflation-adjusted net cash flow after tax?

Estimate the appropriate discount rate to perform a net present value
analysis in real terms.