Appland is thinking of developing a new iPhone app. To do so, they would need to

Question

Appland is thinking of developing a new iPhone app. To do so, they would need to buy a new server which would be depreciated by the straight-line menthes over its 5-year life and would have a zero salvage value. Revenues and other operating costs are expected to be constant over the project's 5-year life. At the end of the life of the project the net working capital would be fully recovered. What is the projects free cash flows in year 5?

Investment cost for the new server (depreciable basis) $125,000

Annual sales reveinues $100,000

Annual operating costs (excl. depreciation) $30,000

change NWC $35,000

Tax Rate 30.00%

WACC 8.0%

Explanation / Answer

Annual Depreciation = (Cost

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