Question

A project will require $511,800 for manufacturing equipment. The equipment will be depreciated straight-line to a zero book value over the six-year life of the project. At the end of the project, the equipment will be worth about 10 percent of what we paid for it. We will have to invest $47,000 in net working capital at the start. The net working capital will be recovered at the end of the project. The project is expected to generate annual sales of $965,000 and costs of $508,000. The tax rate is 21 percent and the required rate of return is 14.7 percent.

What is the project cash flow at current point in time?

-$965,000

-$508,000

-$558,800

-$518,800

-$47,000

What is the project cash flow in Year 6?

$454,283.60

$466,375.20

$432,586.40

$520,124.60

$345,860.20

Answer 1

Current cash flow = cost of equipment + investent in wrk in capital
=(-511800)+(-47000)
=-$558,800
project cash flow in Year 6
Annual Depreciation = (Cost Of The Asset- Salvage Value)/ Life Of The Asset
= $511800-0/6 years
= $85300 per year
Net Income = (sales - costs - depreciaiton ) * (1- tax rate)
=($965000-508000-85300)*(1-0.21)
=293643
cash flow = net income + depreciaiton
=$293643+85300
=$378943
Net sales value = $51180*(1-0.21)
=$40432.20
Release of working capital =$47000
Total cash flow =378943+40432.20+47000
$    4,66,375.20