You must show all of your work A firm is considering adding a new product line.

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You must show all of your work

A firm is considering adding a new product line. The plant that will be used for production was purchased fifty years ago at a cost of $20,000. The project has three years life. It requires $144854 initial investment in equipment and $71.402 in other fixed assets. Straight-line depreciation is used and the fixed assets will be depreciated to zero. The expected salvage is zero in year three. The project requires an initial $40349 investment in net working capital. which will be recovered in year three. The estimated annual sales of the new product is $101.466 and annual costs is $45.560. The firm?s marginal tax rate is 39% and it requires an annual return of 0.13. What is the incremental cash flow in year 0?

Explanation / Answer

Calculation of incremental cash flows in year 0 Initial Investment in Equipment $ (144,854.00) Initial Investment in Fixed assets   $    (71,402.00) Initial Investment in wprking capital   $    (40,349.00) Incremental cash flows in year 0 $ (256,605.00)

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