The proper cash flow

by | Mar 3, 2023 | finance

Landover Construction Company’s most recent revenue was $4,124,000 with operating costs (exclusive of depreciation) of $1,176,300, depreciation expense
of $245,000, and interest expense of $30,000. Landover’s tax rate is 35%. Both revenues and costs for next year are expected to rise each year by 5 percent
with depreciation and interest expense to remain approximately the same. The Company’s president has asked you to evaluate the proposed acquisition of a
new earth mover. The mover’s base price is $50,493.92 and it would cost another $10,000 to modify it for special use. If acquired, the earth mover would be
deprecated using the straight-line method over its economic life of 3 years and then be sold for $15,000. An initial increase in spare parts inventory of
$2,190.15 would also be required. The earth mover would have no effect on revenues, but it is expected to save Landover $20,000 per year in operating costs,
mainly labor. Landover’s cost of capital is 7.13 percent.
If Landover decides to proceed with the acquisition, answer the following:
1. What is the proper cash flow amount to use as the initial investment? Show your computations.
2. What are the proper cash flow amounts that will occur over each of the 3 years of production? Show your computations.
3. Should the earth mover be purchased? Show your computations / justification

 

 

Sample solution

Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell. 

In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.


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God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.

Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.

To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.

 

References

Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.

Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.

Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.

Sample Solution

1. The initial cash flow amount to be used as the initial investment is $73,683.97. This amount consists of the base price ($50,493.92) + cost to modify it for special use ($10,000) + increase in spare parts inventory ($2,190.15).
2. The proper cash flows that will occur over each of the 3 years of production are as follows:
Year 1 – Cash Inflow (Savings from operating costs due to acquisition): $20,000; Cash Outflow (Depreciation Expense): $16,815.33; Net Cash Flow: $3184.67

Sample Solution

1. The initial cash flow amount to be used as the initial investment is $73,683.97. This amount consists of the base price ($50,493.92) + cost to modify it for special use ($10,000) + increase in spare parts inventory ($2,190.15).
2. The proper cash flows that will occur over each of the 3 years of production are as follows:
Year 1 – Cash Inflow (Savings from operating costs due to acquisition): $20,000; Cash Outflow (Depreciation Expense): $16,815.33; Net Cash Flow: $3184.67

Year 2 – Cash Inflow (Savings from operating costs due to acquisition): $20,000; Cash Outflow (Depreciation Expense):$16,815.33; Net Cash Flow:$3184.67
Year 3-Cash Inflow (Savings from operating costs due to acquisition + Sale proceeds after depreciation expense):$35000;Cash Outflows(Depreciation Expense);$16 815 33 ;Net CF : 18 184 67

3 . Yes , the earth mover should be purchased based on its net present value . To calculate this we need first calculate present value factor for each year using weighted average cost of capital WACC ie 7 13% : Year 1 PVF = 0 9377 ; Year 2 PVF = 0 8825 ; Year 3 PVF = 0 8301 Thus when multiplied against respective net cash flows figures above we get following values respectively : Yr1 NPV= 2876 87 ; Yr2 NPV = 2777 92 ; Yr3 NPV = 14999 41 Therefore total present value for entire period discounted at 7 13% rate comes out be 21154 20 which greater than zero means acquisition would generate positive return company and thus must go ahead with it

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