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Costing Solution: Ahmed Raza Mir, ACA

The document presents a costing solution for a 4 year period. It shows initial costs of $2 million for purchase plus additional fees. It then lists annual costs for insurance, driver salaries, and maintenance. Tax benefits can be claimed for some of these costs. The net annual rental income after costs and taxes is shown. The net present value is calculated for the 4 years. An alternative simplified solution is also shown where tax benefits are claimed immediately rather than over multiple years.

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62 views

Costing Solution: Ahmed Raza Mir, ACA

The document presents a costing solution for a 4 year period. It shows initial costs of $2 million for purchase plus additional fees. It then lists annual costs for insurance, driver salaries, and maintenance. Tax benefits can be claimed for some of these costs. The net annual rental income after costs and taxes is shown. The net present value is calculated for the 4 years. An alternative simplified solution is also shown where tax benefits are claimed immediately rather than over multiple years.

Uploaded by

A
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Costing

Solution
- 1 2 3 4
Initial outlay (2,000,000)
Registeration Fee (35,000)
Tax beneift 10,500 Tax benfits will be claimed in 1st year tax return
Mobile prices (15,000)
Tax beneift 4,500 Tax benfits will be claimed in 1st year tax return
Insurance (50,000) (47,250) (44,100) (40,517)
Tax beneift 15,000 14,175 13,230 12,155 Tax benfits will be claimed in 1st year tax return
Net of tax rental 558,810 527,918 495,252 460,736 Working below
Tax savings on depri 150,000 112,500 84,375 230,625
Residual Value 75,000
(2,100,000) 691,560 610,493 552,340 778,516
Ahmed Raza Mir, ACA (ARTT Business School)

NPV (2,100,000) 617,464 486,681 393,145 494,761


NPV (107,948)

Cost 2,000,000
Residual Value (75,000)
Total Value depriciated 1,925,000

Tax savings 577,500


Year 1 (150,000)
Year 2 (112,500)
Year 3 (84,375)
Balancing allowance 230,625

- 1 2 3 4
Rental Income 1,800,000 1,800,000 1,800,000 1,800,000
Driver salary (945,000) (992,250) (1,041,863) (1,093,956)
Maintenance (56,700) (53,582) (50,635) (47,850)
798,300 754,169 707,503 658,195
Tax paid (239,490) (226,251) (212,251) (197,458)
558,810 527,918 495,252 460,736

Ahmed Raza Mir, ACA


Costing
Solution

Alternative simplified solution (assuming tax benefits can be claimed immidiately)


- 1 2 3 4
Initial outlay (2,000,000)
Registeration Fee (24,500)
Mobile prices (10,500)
Insurance (35,000) (33,075) (30,870) (28,362) (25,526)
Net of tax rental 558,810 527,918 495,252 460,736
Tax savings on depri 150,000 112,500 84,375 230,625
Ahmed Raza Mir, ACA (ARTT Business School)

Residual Value 75,000


(2,070,000) 675,735 609,548 551,265 740,836
NPV (2,070,000) 603,335 485,928 392,380 470,814
NPV (117,543)

Ahmed Raza Mir, ACA

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