Amazing Tires is considering opening a new facility to meet demand for the next
ID: 2746003 • Letter: A
Question
Amazing Tires is considering opening a new facility to meet demand for the next 5 years. It will require initial capital expenditures of $5 million at time zero to open the facility. After 5 years the facility will be sold, and the after tax salvage value is expected to be $0.9 million. The initial investment in NOWC will be $690,000. Amazing expects to recover its NOWC investments at the end of the project. Operating cash flows of $1 million per year are expected for each year of the 5 year project. What is the Total Cash flow for the last year of the project (Year 5)?
$1,787,100
$2,590,000
$3,159,800
$2,046,100
$1,787,100
$2,590,000
$3,159,800
$2,046,100
Explanation / Answer
Total cash flow at the last year of the project
= NOWC recovery + Operating cash flows + After tax salvage value
= 690000+1000000+900000 i.e 2590000
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