A project requires buying a $30,000 equipment, which will be depreciated straigh

Question

A project requires buying a $30,000 equipment, which will be depreciated straight-line to zero over its 5-year life. The project also requires an immediate increase in net working capital of $4,000, which will be fully recovered at the end of year 5. The company has an average tax rate of 40%. The project will generate an annual operating cash flow (OCF) of $15,000 in each of the next three years. At the end of year 3, the equipment will be sold for $5,000 in the market. What is the initial cash flow (project cash flow in year 0) for this project?

Answer this question based on the information given from the previous question. What is the project cash flow in year 5 for this project?

Explanation / Answer

1.nitial cash flow (project cash flow in year 0) = -30000 + 4000= -$34,000

c. -$34,000

2.project cash flow in year 5 for this project = 15000+4000 = 19000

b. $19,000

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