Margarite's Enterprises is considering a new project.The project will require €325,000 for new non- current assets, €160,000 for additional inventory and €35,000 for additional trade receivables.
Short-term debt is expected to increase by €100,000 and long-term debt is expected to increase by
€300,000.The project has a 5-year life.The non-current assets will be depreciated straight-line to a
Zero book value over the life of the project.At the end of the project, the non-current assets can be
Sold for 25% of their original cost.The net working capital returns to its original level at the end of
The project.The project is expected to generate annual sales of €554,000 and costs of €430,000.
The tax rate is 35% and the required rate of return is 15%.What is the amount of the after-tax cash
ﬂow from the sale of the non-current assets at the end of this project? (Round your answer to whole
Euros.)

Question

Quizplus · Accepted Answer

To calculate the after-tax cash flow from the sale of non-current assets at the end of the project, we need to first calculate the salvage value, which is 25% of the original cost of non-current assets or €81,250 (€325,000 x 25%). The book value of non-current assets at the end of the project will be zero since they will be depreciated straight-line to zero book value over the life of the project. Therefore, the taxable gain on the sale of non-current assets will be €81,250. After-tax proceeds from the sale of non-current assets will be €81,250 - (€81,250 x 0.35) = €52,813. Therefore, the correct answer is C.

Margarite's Enterprises Is Considering a New Project