A company is evaluating a proposed 4-year project. The depreciable cost will inc

Question

A company is evaluating a proposed 4-year project. The depreciable cost will include the following: $300,000 for the equipment, $20,000 for shipping, and $30,000 for installation. The depreciation life is under the MACRS 3-year class, with a salvage value of $45,000. The inventories will rise by $18,000 and accounts payable will rise by $3,000. In addition, the new sales are estimated to be 150,000 units per year at $2.25 per unit. There is a variable operating cost that is 60% of sales and the company%u2019s marginal tax rate is 35%. Determine the net operating cash flow for the initial year (Year 0).

Explanation / Answer

Net wroking capital = rise in inventories - rise in accounts payable = 18000 -3000 = 15000

equipment = 300000

shipping and installation = 50000

Net operational cash flow = -15000-300000-50000 = -365000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.