A project has an annual operating cash flow of $43,700. Initially, this 4-year project required $3,800 in net working capital, which is recoverable when the project ends. The firm also spent $21,500 on equipment to start the project. This equipment will have a book value of $4,300 at the end of year 4. What is the cash flow for year 4 of the project if the equipment can be sold for $5,400 and the tax rate is 34 percent?

Question

Quizplus · Accepted Answer

The cash flow for year 4 includes the operating cash flow, the recovery of net working capital, and the after-tax salvage value of the equipment. The after-tax salvage value is calculated as the sale price minus the tax on the difference between the sale price and the book value.

A Project Has an Annual Operating Cash Flow of $43,700