Question

A 4-year project has an annual operating cash flow of $57,000. At the beginning of the project, $4,800 in net working capital was required, which will be recovered at the end of the project. The firm also spent $23,500 on equipment to start the project. This equipment will have a book value of $5,100 at the end of the project, but can be sold for $6,000. The tax rate is 40 percent. What is the Year 4 cash flow

Answer 1

$67,440

Step-by-step explanation:

Year 4 cash flow = operating cash flow + terminal year cash flow

terminal year cash flow = sales price of the machine + net working capital - tax(sales price - book value)

6000 + 4800 - 0.4(6000 - 5100) = $10,400

Year 4 cash flow = $10,400 + $57,000 = $67,400