An item of plant costing $750 000 at 30 June 2017 has been proposed in order to improve facility performance. A life cycle costing analysis is required, with calculations and results shown for each stage as listed below.

Expected income generated for the first five years of operation is shown below. These incomes are fixed by rental agreements and are not affected by inflation.

Year (ending June) 2018 2019 2020 2021 2022

Income ($'000) 240 300 330 360 420

(a) Calculate the annual depreciation each year for tax purposes over the five years, using a depreciation rate of 10% p.a., prime cost basis.

(b) What is the salvage value of the plant at the end of the first five years if it is valued at original cost less depreciation?

(c) Maintenance and operating costs are expected to be constant in real terms at $60 000 pa (prices as at 30 June 2017). Calculate these costs at prices current at the relevant year, assuming that the inflation rate is 4.0% pa.

(d) Calculate the taxable income and the tax liability for each year, assuming that the Company tax rate will be 30%.

(e) Calculate the net cash flow for each year relevant for this proposal.

(f) Calculate the discounted cash flow for each year, based on a nominal discount rate of 12.0% pa.

(g) Calculate the discounted Net Present Value of the proposal.

(h) Calculate the Internal Rate of Return.