Question

Dog Up! Franks is looking at a new sausage system with an installed cost of $683,372. This cost will be depreciated straight-line to 23,414 over the project's 7-year life, at the end of which the sausage system can be scrapped for $107,079. The sausage system will save the firm $211,231 per year in pretax operating costs, and the system requires an initial investment in net working capital of $45,261. If the tax rate is 0.27 and the discount rate is 0.14, what is the total cash flow in year 7? (Make sure you enter the number with the appropriate +/- sign)

Answer 1

Sale value of Assets			107079
Book value of assets at end of Year-7	23,414
Gain on sale of assets		83,665
Tax on gain @ 27%			22590
After tax Salvage value (107079-22590)	84489
Net After tax annual operating cash flows
Annual cash savings in expenses			211231
Less: Depreciation (683372-23414) /7		94280
Before tax Income				116951
Less:Tax @27%				31577
After tax Income				85374
Add: Depreciation				94280
Net after tax annual operating cash flows		179654
Total cash flows of Year-7
Net after tax annual operating cash flows		179654
Release of Working capital			45261
After tax Salvage value			84489
Total cash flows of Year-7			309404
Answer is $ 309,404