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Your company is evaluating a capital project with equipment costing $120,600. Shipping costs are estimated at $2000 and installation is expected to be $1300. This equipment has an expected life of 18 years and a salvage value of $1400. Revenues are expected to increase by $15,000 per year and cash operating expenses by $500 per year. An additional working capital investment of $900 is also required, and the firm’s marginal tax rate is 40 percent, and its weighted average cost of capital is 8%. Assume simplified straight line depreciation.

IO = $124,800 ; Δ Depr1-18 = $6883.33 ; NCF1-18 = $11,453 ; NCF18 = $1740

What is the Initial Outlay for this project?

What are the Net Cash Flows per year of this project?

What are the one-time, end of project Cash Flows from this project, if any?

Answer #1

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2
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Year 1
$375,000
Year 2
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Year 4
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Year 2 $450,000
Year 3 $450,000
Year 4 $475,000
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straight-line depreciation. Revenues are expected to increase by
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value of $3,000. The project will be depreciated via simplified
straight-line depreciation. Revenues are expected to increase by
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capital for this project is 15%....

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