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A project will require $543,000 for fixed assets, $118,000 for inventory, and $142,000 for accounts receivable....

A project will require $543,000 for fixed assets, $118,000 for inventory, and $142,000 for accounts receivable. Short - term debt is expected to increase by $65,000. The project has a six-year life. The fixed assets will be depreciated straight - line to a zero book value over the life of the project. No bonus depreciation will be taken. The project is expected to generate annual sales of $905,000 with costs of $730,000. What is the project's cash flow at Time 0?

A) −$536,000 B) −$738,000 C) −$720,000 D) −$779,000 E) −$944,000

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Answer #1

Cash flow at Time 0 = increase fixed assets + Increase in assets - Increase in liabilties

= 543000 + Increase in inventory + increase in accounts receivable - increase in short term debt

= 543000 + 118000 + 142000 - 65000

= 738000

There will be cash outflow for Time 0 so the cash flow will be negative

project's cash flow at Time 0 = -$738,000

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