K&J; Enterprise INc. has purchased a small motor engine line to go in golf carts

Question

K&J; Enterprise INc. has purchased a small motor engine line to go in golf carts. The total purchase cost was 1.5 million, which can generate revenues of $650,000 per year. direct manufacturing costs are expected to run $220,000 a year and other fixed cost expenditures would be somewhere near $80000 a year. The O&M; cost would be around 45,000 a year and K&J; expects to pay various taxes including income taxes of $58000. the project would last about 10 years and at that time the business could be sold for 1 million. determine the project cash flows over 10 year period.

Explanation / Answer

650,000 - 220,000 - 80,000 - 45,000 - 58,000 = 247,000 per year. S Year 1: -1,000,000 + 247,000 = -753,000 Year 2: -753,000 + 247,000 = -506,000 Year 3: -506,000 + 247,000 = -259,000 Year 4: -259,000 + 247,000 = -12,000 Year 5: -12,000 + 247,000 = 235,000 Year 6: 235,000 + 247,000 = 482,000 Year 7: 482,000 + 247,000 = 729,000 Year 8: 729,000 + 247,000 = 976,000 Year 9: 976,000 + 247,000 = 1,223,000 Year 10: 1,223,000 + 247,000 + 1,000,000 = 2,470,000

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