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You are a part of a finance team in a firm, and you were asked by...

You are a part of a finance team in a firm, and you were asked by your boss to estimate the annual cash flows of a project. You estimated that the annual sales and costs of this project is $150,000 and $25,000 respectively. In order to start the project, the firm needs to invest in $300,000 in new equipment including shipping and installation, and $30,000 in working capital. The life of this asset is 3 years, and the project will be terminated after 3 years of operations. The equipmetn will depreciate via simplified straight-line method, and the estimated market value of the machine in 3 years is $20,000. The firm has a marginal tax rate of 22%. What is the terminal cash flow of this project? Round to the nearest penny. Do not include a dollar sign in your answer.

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Answer #1

$330,000300000+30000 $330,000 1 Asset cost 2 Less: Depreciatioon charged 3 WDV of machine at the time of sale $ 4 Sale value of machine 5 Profit on sale 6 Less: Tax on sale @ 22% 7 After tax cash flows from sale of asset15,600 8 Add: 9 Net working capital (Recovery) 10 $20,000 $20,000 4,400 $30,000 11 Terminal cash flows$45,600

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