Question

A business corporation is considering a new three year project that requires an initial fixed asset investment of $5.6 million. The fixed asset will be depreciated straight-line to zero over a 4 year life. The project is estimated to generate $3 million in annual sales with variable costs of $700,000 and fixed costs of $300,000. If the tax rate is 25%. Suppose the project requires an initial investment in net working capital of $500,000 and the fixed assets will be sold at market value of $1.8 million at the end of the project. What are the net cash flows for years 0,1,2, and 3 for this project?

Answer 1

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w ? v ENG 23:56 26-02-2020 22 FC39 . fix X EU ET EV EWEX EYEZ FAFB FC FDFE YEAR -->> LESS LESS 12 -5600000 -500000 3000000 3000000 3000000 1000000 1000000 1000000 1866666.67 1866666.67 1866666.67 133333.33 133333.33 133333.33 33333.33 33333.33 33333.33 100000.00 100000.00 100000.00 1866666.67 1866666.67 1866666.67 -61000001966666.67 1966666.67 1966666.67 500000 1350000 [=1800000*(1-0.25)] -6100000 1 966667 1966667 3816667 COST OF ASSET WORKING CAPITAL SALES COSTS = VARIABLE + FIXED DEPRECIATION (5600000/3) INCOME BEFORE TAX TAX NET INCOME DEPRECIATION OPERATING CASH FLOW RECOVERY OF WORKING CAPITAL AFTER TAX SALVAGE VALUE OF ASSET NET CASH FLOW LESS ADD year 0 cash flow year 1 cash flow year 2 cash flow year 3 cash flow ROUNDED -6100000 1966667 1966667 3816667 (INCLUDING WORKING CAPITAL RECOVERY + AFTER TAX SALVAGE] ... BOND OPTION TO WAIT STEIN indiffEPS EBIT LEASE SLM GOLF IRR MACRS HAMADA pretax Sheet4 Sheet3 Sheets Sheet6 Sheet2 Sheet7 : ... :