Future Cash Flows: Initial investment, operating flows, end
A firm believes it can generate an additional $250,000 per year in revenues for the next 5 years if it replaces existing equipment with new equipment that costs $210,000. The firm expects to be able to sell the new equipment when it is finished using it (after 5 years). The existing equipment has a book value of $20,000 and a market value of $12,000. Variable costs are expected to total 40% of revenue. The additional sales will require an initial investment in net working capital of $15,000, which is expected to be recovered at the end of the project (after 5 years). Assume the firm uses straight line depreciation. The firm's marginal tax rate is 30%.
a) What is the required initial investment (at t = 0)?
b) What is the annual operating cash flow?
c) What is the end of project cash flow?© SolutionLibrary Inc. solutionlibary.com July 14, 2020, 10:27 pm 9836dcf9d7 https://solutionlibrary.com/business/accounting/future-cash-flows-initial-investment-operating-flows-end-f4oo