Question

Relevant cash flow and timeline depiction For each of the following projects, determine the relevant cash flows, and depict the cash flows on a time line. a. A project that requires an initial investment of $120,000 and will generate annual operating cash inflows of $29,000 for the next 20 years. In each of the 20 years, maintenance of the project will require a $5,000 cash outflow. b. A new machine with an installed cost of $82,000. Sale of the old machine will yield $25,000 after taxes. Operating cash inflows generated by the replacement will exceed the operating cash inflows of the old machine by $15.000 in each year of a 6-vear period. At the end of year 6, liquidation of the new machine will yield $25.000 after taxes, which is $10,000 greater than the after-tax proceeds expected from the old machine had it been retained and liquidated at the end of year 6. c. An asset that requires an initial investment of $3 million and will yield annual operating cash inflows of $299,000 for each of the next 10 years. Operating cash outlays will be $16,000 for each year except year 5, when an overhaul requiring an additional cash outlay of $494,000 will be required. The asset's liquidation value at the end of year 10 is expected to be zero. a. A project that requires an initial investment of $120,000 and will generate annual operating cash inflows of $29,000 for the next 20 years. In each of the 20 years, maintenance of the project will require a $5,000 cash outflow. (Select all the choices that apply.) A. At year 0, the initial investment will be - $120,000. For each of the years 1 thru 20, the net cash flow will be $29,000 - $5,000 = $24,000. B. This is a conventional cash flow pattern, where the cash inflows are of equal size, which is referred to as an annuity. O C. At year 0, the initial investment will be - $120,000. For each of the years 1 thru 20, the net cash flow will be $29,000. OD. Year 0 1 2 3 18 19 20 Cash flow - $120,000 $24,000 $24,000 $24,000 $24,000 $24,000 $24,000

Answer 1

For a choices A, B and D are correct  

b 0 2 3 4 - 82,000 + 25,000 15000 15000 15000 15000 15000 Incremental cash flows - 57,000 15000 + 10,000 257000 10 $283,000 $211,000 $283000 82828 $3 million $283,000 $283,000 - 5 6 7 000 $283,000 8283,000 The relevant cash flows will be as follaus - year I Cash Inflow/ (Outflow) ($3 million) $283,000 $283,000 $ 283,000 $ 283,000 ($ 211,000) 9 283,000 $ 283,000 $283,000 -NAJhona 60 W $283,000 $ 283,000

For answers of b and c please see the image attached