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 five years. At the end of year 5, the equipment will be sold for $5,000 in the market. What is the project cash flow in year 5 for this project? What is the project cash flow in year 5 for this project?

Select one:

a. $15.000

b. $19,000

c. $22,000

d. $24,000

show work please

Explanation / Answer

Please tick option d.

Particulars 0 1 2 3 4 5 Purchase cost 30000 Increase in working capital 4000 4000 4000 4000 4000 4000 Depriciation 6000 6000 6000 6000 0 Operating cash flow ( increase in working capital) 15000 15000 15000 15000 15000 Sales value at the end (cash sale) 5000 Cash flow (gross) -34000 25000 25000 25000 25000 24000

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