Our company has to purchase 22.2 Million Rupees Vehicles for project of five year. Please tell, how much annual cash flow and how it will calculate?
Awais from Pakistan
Awais ! It is very simple. You know that vehicles will be used for your business. Before buying vehicles, see your transport cost. These transport cost, you can find from your previous year financial statement. Add outstanding transport cost in it. Deduct annual petrol and repair cost from your balance transport cost. No need to deduct depreciation of your vehicles because there is no any cash outflow in depreciation. Now this will be the net annual cash inflow which your vehicles will provide to you. Your company need not to pay transport charge.
If you want to calculate present value of annual cash flow. Estimate your current return on investment. Suppose, if your Rs. 22.2 million in your govt. bank what will you receive interest. But cut off rate will little high from this bank interest rate. Now, calculate one rupee's present value of this rate or see present value from table which you can buy from market. Now multiply your original cash inflow with factor value of cut off rate. After this, you can calculate the annual cash flow's present value. You can use this figure for calculating the net present value of your vehicle's investment. Good luck for good deal !