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

Question

Quizplus · Accepted Answer

The project's cash flow at Time 0 is calculated as the initial investment in fixed assets, inventory, and accounts receivable minus the increase in short-term debt. This is: $543,000 (fixed assets) + $118,000 (inventory) + $142,000 (accounts receivable) - $65,000 (short-term debt) = $738,000.

A Project Will Require $543,000 for Fixed Assets, $118,000 for Inventory