Question

What are Apples operating cash flows for year 3 of this project? A. $270,900 B. $273,840...

What are Apples operating cash flows for year 3 of this project?

A.

$270,900

B.

$273,840

C.

$275,310

D.

$276,990

Apple is considering a project where they will make Espresso coffee makers. They can buy the equipment they need to make the coffee makers for $600,000 plus another $70,000 for training and installation. They will have to increase inventory by $55,000 and accounts payable will increase $20,000. They think they can sell 7,000 coffee makers a year at a price of $75 each for 4 years. The estimate variable costs at 35% of revenue. They follow a four yeas MACRS schedule for depreciation with the following depreciation rates:

Year 1: 33%

Year 2: 45%

Year 3: 15%

Year 4: 7%

They believe the equipment has a salvage value of $15,000. Apple has a tax rate of 28%.

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Answer #1

Cost of equipment = $600,000 + $70,000 = $670,000

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