Question
In: Finance
Dog Up! Franks is looking at a new sausage system with an installed cost of $626,691....
Dog Up! Franks is looking at a new sausage system with an installed cost of $626,691. This cost will be depreciated straight-line to 56,970 over the project's 7-year life, at the end of which the sausage system can be scrapped for $88,788. The sausage system will save the firm $173,036 per year in pretax operating costs, and the system requires an initial investment in net working capital of $63,590. If the tax rate is 0.36 and the discount rate is 0.12, what is the total cash flow in year 7? (Make sure you enter the number with the appropriate +/- sign)
Solutions
Expert Solution
The Cash flow in year 7 would be $256,990
Explanation:
| Cash Inflow | 140,043 |
| Add: Working Capital | +63,590 |
| Profit on sale of Scrap | + 20,364 |
| Net cash flow in the year 7 | 223,996 |
| Scrap value of Sausage | 88,788 |
| less: Cost of Sausage | - 56,970 |
| Profit on sale of scrap | 31,818 |
| Less: Tax on sale of scrap | - 11,454 |
| Net profit on sale of scrap | 20,364 |
| Cost Saving | 173036 |
| Less: Depreciation | -81389 |
| Profit Before Tax | 91647 |
| Less: Tax | -32993 |
| Profit After Tax | 58654 |
| Add: Depreciation | +81389 |
| Cash Inflow | 140043 |
I hope this clear your doubt.
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