Estimate Cash flows of the three-year project by filling in the values in the table below....

Estimate Cash flows of the three-year project by filling in the values in the table below. · Equipment will cost $40,000, Shipping and installation charges for the equipment are expected to total $5,000. ·The Machine is depreciated using straight line method to a value of $0 at the end of it's life. ·Net working capital is $10,000 initially and $5,000 in year 1. All investment in net working capital is recovered back at the end of the project ·Total revenues will be $50,000 in year 1, $60,000 in year 2 and $75,000 in year 3. ·Operating costs = $25,000 during the first year and increase at a rate of 6 percent per year over the 3-year project ·Marginal tax rate is 40 percent. Cost of capital = 10%

Year	0	1	2	3
Revenue
-Operating Cost
- Depreciation
Operating Earnings Before Taxes
- Taxes (40%)
Operating Earnings After taxes
+ Depreciation
- Change in Net working Capital
- Initial Investment in Machinery
Net Cash Flows

Expert Solution

net cash flow each year = earnings after taxes + depreciation - change in net working capital

Depreciation each year = (cost of equipment + shipping and installation cost) / life of project

Depreciation each year = ($40,000 + $5,000) / 3 = $15,000.

jeff jeffy answered 7 months ago

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