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Calculating 'cash flows at the end' Today (Year 0), Kangaroo Enterprises is evaluating whether to purchase...

Calculating 'cash flows at the end'

Today (Year 0), Kangaroo Enterprises is evaluating whether to purchase a new jetboat to operate scenic thrill rides around Lord Howe Island. The company currently has two other boats offering a snorkelling tour and a glass bottom boat tour. The jetboat costs $1,800,000. The jetboat project is expected to last ten years. The Australian Tax Office states the jetboat should be depreciated to zero over a 15-year life.

In Year 0, the new jetboat tour will result in an increase in inventory for Kangaroo Enterprises from $17,000 to $24,000. The company anticipates that accounts payable immediately required for the jetboat tour will increase by $11,000.

The company has already agreed to sell the jetboat in ten years’ time to an unrelated firm for $250,000.

The company is expecting the jetboat rides will be very popular and are anticipating paying a one-off special dividend to shareholders of $150,000 at the end of the project.

Assume the company tax rate is 30%.

What are the 'cash flows at the end'?

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Expert Solution

ekkarill92 answered 11 months ago
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