Question

What is the terminal cash flow for the following two projects with a life span of five years. The salvage value for project A is $18,000 and project B is $20,000 and both have been depreciated correctly. It is assumed that after the five years the assets will be sold and the salvage value will be received. The initial outlay for both projects is $715,000 which includes $90,000 change in net working capital (so asset value is $625,000)

Project A

Operating cash flow = $465,992

Project B

Operating cash flow = $235,480

Can you also show how the terminal cash flow should be presented.

Answer 1

Terminal Cash Flow for the Project A & Project B

Terminal cash flow is the aggregate amount of the operating cash flow, Salvage Value and the Release of Net working capital at the end of the Project

Terminal Cash Flow = Operating cash flow + Salvage Value + Release of Net Working Capital

Terminal Cash Flow for PROJECT A

Terminal Cash Flow = Operating cash flow + Salvage Value + Release of Net Working Capital

= $465,992 + $18,000 + $90,000

= $573,992

Terminal Cash Flow for PROJECT B

Terminal Cash Flow = Operating cash flow + Salvage Value + Release of Net Working Capital

= $235,480 + $20,000 + $90,000

= $345,480

Terminal Cash Flow for PROJECT A = $573,992

Terminal Cash Flow for PROJECT B = $345,480