Question

What is the discounted cash flow in the final year of an investment assuming: $7,000 after-tax...

What is the discounted cash flow in the final year of an investment assuming: $7,000 after-tax cash flows from operations, the machine that is depreciated to $2,000 is sold for $4,000, the project had initially required $4,000 in additional working capital, and a 35% marginal tax rate? Assume the investment has a 10-year life and the discount rate is 12 percent.

Homework Answers

Answer #1
Sale value of machine $        4,000
Less:
Marginal tax $          -700
35%*(4000-2000)
add:
After-tax cash flow from operation $        7,000
Release of working capital $        4,000
Cash Flow for final year $      14,300
Discounting factor 0.32197324
Discounted cash flow $ 4,604.22
($14300*0.3219732)
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