Question

13,018.5 Question 2 1 pts Your company, Dominant Retailer, Inc., is considering a project whose data are shown below. Revenue and cash operating expenses are expected to be constant over the project's 5 year expected operating life; annual sales revenue is $95,000.00 and cash operating expenses are $39,750.00. The new equipment's cost and depreciable basis is $140,000.00 and it will be depreciated by MACRS as 5 year property. The new equipment replaces older equipment that is fully depreciated but can be sold for $7,500. In addition, the new equipment requires an additional $5,000 of net operating working capital which can be fully recovered at the end of the project. The new equipment is expected to be sold for $10,995 at the end of the project in year 5. The marginal tax rate is 20.00%. What is the project's Initial Cash Outlay at Year 0? Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

the question has 2 other parts. finding year 1 net operating cash flow and the terminal year nonoperating cash flow at the end of year 5. I know you can only answer 1 question but if you could at least show how to find it, id really appreciate it!

Answer 1

The cash outlay for year 0 will be all the cash which the company will have to spend to start the project minus any cash inflow which happens in year 0. In year zero the company will have to spend Cash to buy the equipment of $140,000 and will have to have cash for working capital $5,000, the inflow of the money will be from selling the old equipment for $7,500. Thus the total cash outlay= $140,000 + $5,000 - $7,500 = $142,500

To answer your other queries

To find the net operating cash flow you need to make the income statement then add the depreciation to the Net Income (as depreciation is not a cash expense we will add it to the net income).

I have done this for you, this can be shows as follows

Sales	95000
Expenses	39750
EBDIT	55250
Depreciation	28000
EBIT	27250
Interest	0
EBT	27250
Tax	5450
Net income	21800

note that the depreciation will be according to MACRS 5 year table which says that depreciation in year 1 should be 20% of the price of the asset.

Then if you add the depreciation back in the net income= $(21800 + 28000) = $49,800

The non operating cash flow is the cash flow which did not happen because of the operating profit but was a cash inflow from other activities like financial activities or investing activities. Thus the non operating cash flow at the end of the year will include $10,995 for selling the equipment and the $5,000 of working capital which you will get after the end of the project. (Keep in mind that this is the non operating cash flow and not the non operating income as things will be different if you are talking about non operating income.)

Thus non operating cash flow = $10,955 + $5,000 = $15,955