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Your company is planning a $216,000 to invest in new equipment. This cost will be depreciated...

Your company is planning a $216,000 to invest in new equipment. This cost will be depreciated on a straight-line basis over a 4-year period. They can salvage it for $45,000.  You need to invest $40,000 in new Net Working Capital, which will be returned at the end of the project.  The new equipment is expected to generate $489,000 in additional annual sales. Costs are 46% of sales. The tax rate is 34%.

19)What is the Cash Flow From Assets for the last year of this project?

round to nearest dollar. enter the number with commas if necessary

Solutions

Expert Solution

Last year Cash flow (4th-year cash flow) = Cash flow from operation of 4th-year + Terminal Cash Flow

Cash flow from operation for 4th year
Sales $    489,000.00
(-)Less Costs @ 46% of sales $ (224,940.00)
EBITD $    264,060.00
(-)Less Depreciation $    (42,750.00)
EBT $    221,310.00
(-)Less Tax expences @34% $    (75,245.40)
EAT $    146,064.60
(+)Add Deprection $      42,750.00
Total Cash flow from operation for 4th year $    188,814.60


*Note*

Depreaction = Value of asset - Salvage Value / No of useful life

Depreaction = $216,000 -  $45,000 / 4

Depreaction = $42,750.00

Terminal Cash Flow
Value of the asset $ 45,000.00
(+)Add Release of Net Working Capital $ 40,000.00
Total Terminal Cash Flow $ 85,000.00

Last year Cash flow (4th-year cash flow) = Cash flow from operation of 4th-year + Terminal Cash Flow

Last year Cash flow (4th-year cash flow) = $ 188,814.60 + $ 85,000.00

Last year Cash flow (4th-year cash flow) = $ 273,814.60

jeff jeffy answered 1 year ago
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