Homework Answers
Question 7.
In the given question it is asked to calculate the fourth year cashflows:
| Year | Particulars | Cashflows |
| 0 | Initial investment cost + Working capital | $120,000 + $5,000 = $125,000 |
| 1 | Operating Cashflows | $45,000 |
| 2 | Operating Cashflows | $45,000 |
| 3 | Operating Cashflows | $45,000 |
| 4 | Operating cashflows + Working capital recovered + Salvage value of the equipment | $45,000 + $5,000 + $25,000 = $75,000 |
Explanation to the above table calculations:
Here, in the above question Value of Operating Cashflows are given as $45,000
it is also mentioned in the question that the working capital used in the year Zero will be recovered in the 4th year which is amounting to $5,000
Now, salvage value of the equipment is given as $25,000.
Therefore considering these amonts in the 4th year as cashflows the total Cashflow Value at the end of the project will be = $45,000 + $5,000 + $25,000 = $75,000
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