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Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment...

Explorer, Inc. is considering a new 4-year project that requires an initial fixed asset (equipment) investment of $200,000. The fixed asset is three-year MACRS property for tax purposes. In four years, the equipment will be worth about half of what we paid for it. The project is estimated to generate $500,000 in annual sales, with costs of $400,000. The firm has to invest $100,000 in net working capital at the start. After that, net working capital requirements will be 25 percent of sales. The tax rate is 40 percent. What is the incremental cash flow in year 1?

35,000

60,000

-25,000

86,664

61,664
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