Dazzle Company uses straight-line depreciation and is considering a capital expenditure for which the following relevant cash flow data have been estimated: $$\begin{array} { | l | r | }
\hline \text { Estimated useful life: } & \text { 3 years } \
\hline \text { Initial investment: } & \$ 500,000 \
\hline \text { Savigs year l: } & \$ 200,000 \
\hline \text { Savigs year 2: } & \$ 150,000 \
\hline \text { Saviggs year 3: } & \$ 225,000 \
\hline \text { Residual value after 3 yrs } & \$ 20,000 \
\hline
\end{array}$$
-Total net inflows during the useful life of the asset are:

Question

Dazzle Company uses straight-line depreciation and is considering a capital expenditure for which the following relevant cash flow data have been estimated: $$\begin{array} { | l | r | } 
\hline \text { Estimated useful life: } & \text { 3 years } \
\hline \text { Initial investment: } & \$ 500,000 \
\hline \text { Savigs year l: } & \$ 200,000 \
\hline \text { Savigs year 2: } & \$ 150,000 \
\hline \text { Saviggs year 3: } & \$ 225,000 \
\hline \text { Residual value after 3 yrs } & \$ 20,000 \
\hline
\end{array}$$ 
-Total net inflows during the useful life of the asset are:

Quizplus · Accepted Answer

Since the company uses straight-line depreciation, the net inflow will be the total amount of cash generated by the asset during its useful life minus the cost of the asset. In this case, the total cash generated is $750,000 ($250,000 per year for three years), and the cost of the asset is $175,000. Therefore, the net inflow is $575,000.

Dazzle Company Uses Straight-Line Depreciation and Is Considering a Capital