Question

1. P11–2 Net cash flow and timeline depiction For each of the following projects, determine the net cash flows, and depict the cash flows on a timeline.

   1. A project that requires an initial investment of $120,000 and will generate annual operating cash inflows of $25,000 for the next 18 years. In each of the 18 years, maintenance of the project will require a $5,000 cash outflow.

      1. Please indicate the following for each year:

         1. Operating Cash Flows

            Maintenance Costs

            Cash Flow

   2. A new machine with an installed cost of $85,000. Sale of the old machine will yield $30,000 after taxes. Operating cash inflows generated by the replacement will exceed the operating cash inflows of the old machine by $20,000 in each year of a 6-year period. At the end of year 6, liquidation of the new machine will yield $20,000 after taxes, which is $10,000 greater than the after-tax proceeds expected from the old machine had it been retained and liquidated at the end of year 6.

      1. Please indicate the following for each year:

         1. Operating Cash Flows

            Sale of Old Machine

            Cash Flow

   3. An asset that requires an initial investment of $2 million and will yield annual operating cash inflows of $300,000 for each of the next 10 years. Operating cash outlays will be $20,000 for each year except year 6, when an overhaul requiring an additional cash outlay of $500,000 will be required. The asset’s liquidation value at the end of year 10 is expected to be zero.

      1. Please indicate the following for each year:

         1. Operating Cash Flows

            Operating Cash Outlays

            Cash Flow

Answer 1

amounts are in $

a)

b)

c)