Question

what is the terminal year cash flow (year 6)
change in net working capital from year 0 is $3,779,000.00; salvage value is $4,800,000.00;

Answer 1

Terminal cash flow is the net cash flow that occurs at the end of a project and represents the after-tax proceeds from disposal of the project assets and recoupment of working capital.

Terminal cash flow has two main components:

1. proceeds from disposal of project equipment, etc i.e., Salvage Value and
2. cash flows associated with reversion of working capital to the level that prevailed before the start of the project.

Terminal Year Cash Flow (Year 6) = Salvage Value + Change in Net Working Capital

Note: It is assumed that Working capital will revert back to its initial level at the end of year 6.

Therefore, = $ 4,800,000 + $ 3,779,000 = $ 8,579,000