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
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 | ||||
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