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.
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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