Coffee-Cola is considering a project for a new bottled beverage
called Lots-A-Latte. The project would require new assets today
costing $320,000 that would be depreciated using 3-year MACRS
Depreciation (yr 1: 33%, yr 2: 45%, yr 3: 15%, yr 4: 7%).
Additional net working capital of $15,000 would be needed at the
beginning of the project’s life and would be recovered at the end
of the project. The project has a 3-year expected useful life with
an expected salvage value of $90,000 at the end of the 3-year
expected useful life. Coffee-Cola expects annual sales of $250,000
and annual operating costs of $110,000 during the 3-year life of
the project. Coffee-Cola’s marginal tax rate is 25% and their WACC
is 8%
Refer to Coffee-Cola, what is the terminal (non-operating) cash
flow at the end of year 3 for the Lots-A-Latte project?
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