3. You have been asked to estimate the cash flows for an upcoming project that w

Question

3. You have been asked to estimate the cash flows for an upcoming project that will last 3 years. The projected net income for the next three years are $50 million, $80 million, and $100 million, respectively. The projected depreciation will be $10 million per year for the three years. The project will require an inital outlay of $105 million for the machine and an increase in net working capital of $15 million. Assume that machine will be fully depreciated and cannot be resold. Calculate the cash flows for this project.

Explanation / Answer

Calculation of Cash flows of the Project Year Initail Outlay Working Capital Requirement Net Income Depreciation Net Cash Flow 0 $                -105.00 $                                                             -15.00 $              -120.00 1 $                   50.00 $               10.00 $                  60.00 2 $                   80.00 $               10.00 $                  90.00 3 $                 100.00 $               10.00 $                110.00 3 $                                                               15.00 $                  15.00 Total Net Cash Flow for 3 Years of the project $                155.00 Net Cash flow for the year = Net Income + Depreciation for the year

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