Question

# Company ABC is considering a new 5-year investment into new production equipment that requires initial investment...

Company ABC is considering a new 5-year investment into new production equipment that requires initial investment € 5 million. The project is expected to generate € 1.4 million in annual sales, with costs of € 0.6 million per year for next 5 years. ABC uses the straight-line depreciation over the 5 years of project life (book value assumed to be zero at the end of the project).

If the tax rate is 35%. What is the annual operating cash flow of the project? Express your answer in millions of euros.

 Equip ment cost = \$5,000,000 intellation cost = \$0 Cost capitalised = 5,000,000.00 Life of machine(years) = 5 Depreciation = Cost / life in years 1,000,000.00 Year 1 Sales 1,400,000.00 Less Cost 600,000.00 Profit 800,000.00 Less Depreciation 1,000,000.00 Net profit(LOSS) (200,000.00) Less Tax @ 35% (70,000.00) Profit after tax (130,000.00) Add Depreciation 1,000,000.00 CASh Inflow ( yearly) 870,000.00

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