KOOKIS, Inc., has developed a new cooky. The firm is planning to spend $60,000 o

Question

KOOKIS, Inc., has developed a new cooky. The firm is planning to spend $60,000 on a new oven to produce the new cooky for 3 years. The machine has an expected life of three years, a $10,000 estimated resale value, and falls under the straight-line 3-year class life. Revenue from the new cooky is expected to be $50,000 per year, with costs of $20,000 per year. The firm has a tax rate of 40 percent, and it expects net working capital to increase by $10,000 at the beginning of the project. What will the cash

Explanation / Answer

Cash flows for the project would be as follows :

Year 0 1 2 3 Sales 0 50000 50000 50000 -Fixed costs 0 20000 20000 20000 -Depreciation 0 20000 20000 20000 EBIT 0 10000 10000 10000 -Taxes 0 4000 4000 4000 EBI 0 6000 6000 6000 +Depreciation 0 20000 20000 20000 Operating CF 0 26000 26000 26000 -?NWC 0 10000 0 0 -?Fixed Assets -60000 0 0 0 Cash Flows for the Project -60000 16000 26000 26000

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