A company is evaluating a proposed 4-year project. The depreciable cost will inc

Question

A company is evaluating a proposed 4-year project. The depreciable cost will include the following: $300,000 for the equipment, $20,000 for shipping, and $30,000 for installation. The depreciation life is under the MACRS 3-year class, with a salvage value of $45,000. The inventories will rise by $18,000 and accounts payable will rise by $3,000. In addition, the new sales are estimated to be 150,000 units per year at $2.25 per unit. There is a variable operating cost that is 60% of sales and the company’s marginal tax rate is 35%. Complete parts (a) through (c) below.
a) Determine the net operating cash flow for the initial year (Year 0).
b) Determine the net operating cash flow for Years 1, 2, and 3.
c) Determine the net terminal year cash flow.

Explanation / Answer

$300,000 for the equipment, $20,000 for shipping, and $30,000 for installation total = 350,000 salvage= 45000 time = 3 years inventories will rise by $18,000 accounts payable will rise by $3,000 net cash flow for innovatory and AP = 15000$ 150,000 units per year at $2.25 per unit sales = 337500 a. net operating cash flow for the initial year (Year 0) = 350,000 b. net operating cash flow for Years 1, 2, and 3. = -305,000/3 + 15000/3 + 337500/3 - 337500 x.6 c. net terminal year cash flow = part a - 3(part b) (tax rate) ANSWER please rate appreciated

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