Amazing Tires is considering opening a new facility to meet demand for the next

Question

Amazing Tires is considering opening a new facility to meet demand for the next 5 years. It will require initial capital expenditures of $5 million at time zero to open the facility. After 5 years the facility will be sold, and the after tax salvage value is expected to be $0.9 million. The initial investment in NOWC will be $690,000. Amazing expects to recover its NOWC investments at the end of the project. Operating cash flows of $1 million per year are expected for each year of the 5 year project. What is the Total Cash flow for the last year of the project (Year 5)?

A. $1,787,100

B. $2,590,000

C. $3,159,800

D. $2,046,100

Explanation / Answer

Total cash flow for the last year of the project (Year 5):

Operating cash flows $1,000,000

NOWC recovered $690,000

Salvage value $900,000

Total cash flow $2,590,000

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