What is the undiscounted cash flow in the final year of an investment,assuming $10,000 after-tax cash flows from operations,$1,000 from the sale of a fully depreciated machine,$2,000 required in additional working capital,and a 35% tax rate?
A) $8,450
B) $12,600
C) $12,650
D) $14,000

Question

Quizplus · Accepted Answer

The cash inflows in the final year would be the after-tax cash flows from operations and the amount received from the sale of the machine, which is $10,000 + $1,000 = $11,000. However, we also have to account for the additional working capital required, which reduces the cash inflow by $2,000.

So, the undiscounted cash flow in the final year would be:
($11,000 - $2,000) x (1 - 0.35) = $7,150

Therefore, the correct answer is C.

What Is the Undiscounted Cash Flow in the Final Year