Question

Steamboat Springs Furniture, Inc., is considering purchasing a new finishing lathe that costs $61,475.00. The lathe will generate revenues of $99,653.00 per year for five years. The cost of materials and labor needed to generate these revenues will total $50,876.00 per year, and other cash expenses will be $11,734.00 per year. The machine is expected to sell for $8,467.00 at the end of its five-year life and will be depreciated on a straight-line basis over five years to zero. Steamboat Springs' marginal tax rate is 34.00 percent, and its cost of capital is 13.00 percent.

-What is the project cash flow for the first year of the project?

-What is the project cash flow for the last year of the project? (HINT: Add project cash flow plus the terminal value)

Answer 1