Exhibit 9-2
The following data are projected for a possible investment project:

-Refer to Exhibit 9-2.The project requires an initial investment of $300,000 on equipment.Working capital is anticipated to be variable at 10% of revenues; the working capital investment must be made at the beginning of each period,and will be recovered in full at the end of year 4.Equipment will be sold at its book value at the end of year 4.The tax rate is 40%.
What is the net cash flow to the firm in year 4?

Question

Exhibit 9-2
The following data are projected for a possible investment project:
 
-Refer to Exhibit 9-2.The project requires an initial investment of $300,000 on equipment.Working capital is anticipated to be variable at 10% of revenues; the working capital investment must be made at the beginning of each period,and will be recovered in full at the end of year 4.Equipment will be sold at its book value at the end of year 4.The tax rate is 40%.
What is the net cash flow to the firm in year 4?

Quizplus · Accepted Answer

Operating cash flow = 106,000*0.6 NI + 20,000 depreciation = 83,600
Change in working capital = 18,000
Sale of equipment at book value = 300,000 - (80,000+60,000+40,000+20,000)= 100,000
Net cash flow = 83,600 + 18,000 + 100,000 = 201,600

Exhibit 9-2 The Following Data Are Projected for a Possible Investment Project