Question

Gallatin, Inc., is considering an investment of $373,000 in an asset with an economic life of 5 years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $253,000 and $78,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 4 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $53,000 in nominal terms at that time. The one-time net working capital investment of $14,000 is required immediately and will be recovered at the end of the project. All corporate cash flows are subject to a 35 percent tax rate.
  
What is the project’s total nominal cash flow from assets for each year? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole dollar, e.g., 32.)
  

	Cash flow
Year 0		$
Year 0		$
Year 2		$
Year 3		$
Year 4		$
Year 5		$

Answer 1

Project's total nominal cash flow from assets are:
Year	Cash outflow	Rev	Exp	dep	NOI	tax @0.35	NI	Nominal Cash flow
0	-373000							-373000
0	-14000							-14000
1		253000	78000	74600	100400	35140	65260	139860
2		263120	81120	74600	107400	37590	69810	144410
3		273645	84365	74600	114680	40138	74542	149142
4		284591	87739	74600	122251	42788	79463	154063
5		295974	91249	74600	130125	45544	84581	159181
5								14000
5					53000	18550		34450