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

Explanation / Answer

Net operating cash flow for the initial year (Year 0) =

Equipment Cost + Shipping + Installation + Increase in working capital

= 300000 + 20000 + 30000 + 15000

= 365000

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