Hollister & Hollister is considering a new project. The project will require $522,000 for new fixed assets, $218,000 for additional inventory, and $39,000 for additional accounts receivable. Shortterm debt is expected to increase by $165,000. The project has a 6year life. The fixed assets will be depreciated straightline to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 20 percent of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $875,000 with costs of $640,000. The tax rate is 34 percent and the required rate of return is 14 percent. What is the project's cash flow at time zero?
a. 
$614,000 

b. 
$779,000 

c. 
$944,000 

d. 
$536,000 

e. 
$720,000 
What is the cash flow recovery from net working capital at the end of this project?
a. 
$344,000 

b. 
$92,000 

c. 
$75,000 

d. 
$422,000 

e. 
$14,000 
ans 1  Computation of cash flow at time zero  
new fixed assets  522,000  
inventory  218,000  
Account receivable  39,000  
Short term debt  165,000  
cash outflow at time zero  614,000  
Answer = option a=  614,000  
ans 2  cash flow recovery from net working capital at the end of this project  
inventory  218,000  
Account receivable  39,000  
Short term debt  165,000  
92,000  
ans is option b)  92,000 
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