Cochrane, Inc., is considering a new three-year expansion project that requires

Question

Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $1,860,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,950,000 in annual sales, with costs of $1,060,000. The project requires an initial investment in net working capital of $150,000, and the fixed asset will have a market value of $175,000 at the end of the project. Assume that the tax rate is 35 percent and the required return on the project is 14 percent. Requirement 1: What are the net cash flows of the project for the following years

Year Cash Flow

1 ?   

2 ?

3 ?

Explanation / Answer

computation of cash flow :

NPV is not calculated because not asked in the question.

Particulars 1 2 3 sales 1950000 1950000 1950000 cost 1060000 1060000 1060000 Gross profit = sales - cost 890000 890000 890000 Depreciation Formula = value /3 years Straight line since no salvage value 1860000/3 620000 620000 620000 profit before tax 270000 270000 270000 tax rate 35% 94500 94500 94500 Profit after tax 175500 175500 175500 Cash flow = profit after tax + depreciation 795500 795500 795500

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

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