Question

# Your company, Dominant Retailer, Inc., is considering a project whose data are shown below. Revenue and...

Your company, Dominant Retailer, Inc., is considering a project whose data are shown below. Revenue and cash operating expenses are expected to be constant over the project's 5 year expected operating life; annual sales revenue is \$99,000.00 and cash operating expenses are \$49,750.00. The new equipment's cost and depreciable basis is \$155,000.00 and it will be depreciated by MACRS as 5 year property. The new equipment replaces older equipment that is fully depreciated but can be sold for \$7,000. In addition, the new equipment requires an additional \$5,000 of net operating working capital, which can be fully recovered at the end of the project. The new equipment is expected to be sold for \$10,750 at the end of the project in year 5. The marginal tax rate is 20.00%. What is the project's Initial Cash Outlay at Year 0? Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12,300.456 then enter as 12300.46 in the answer box.

Solution:- Given in Question-

Equipment cost = \$1,55,000

Net Working capital = \$5,000

To Calculate the project's Initial Cash Outlay at Year 0-

Initial Cash Outlay at year 0 = -Equipment Cost - Net operating working capital

Initial Cash Outlay at year 0 = -\$1,55,000 - \$5,000

Initial Cash Outlay at year 0 = -\$1,60,000

The Projects initial cash outlay at year 0 is amounting to -\$1,60,000.

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