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Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset...

Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $928725. The fixed asset will be depreciated straight-line to 49027 over its 3-year tax life, after which time it will have a market value of $116318. The project requires an initial investment in net working capital of $43283. The project is estimated to generate $178575 in annual sales, with costs of $119733. The tax rate is 0.33 and the required return on the project is 0.09. What is the total cash flow in year 0? (Make sure you enter the number with the appropriate +/- sign)

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Answer #1

Total cash flow in year 0

The total cash flow associated with the project in year 0 are the Initial investment in fixed assets plus the initial investment in net working capital

Therefore, the total cash flow in year 0 = Initial investment in fixed assets + Initial investment in net working capital

= -$928,725 - $43,283

= -$972,008 (Year 0 cash flow would be normally an outflow and therefore, it would be negative)

“Hence, the total cash flow in year 0 will be -$972,008 (Negative)

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