Tinney & Smyth Inc. is considering the purchase of a new batch polymer-bonding m

Question

Tinney & Smyth Inc. is considering the purchase of a new batch polymer-bonding machine for producing Crazy Rubber, a children's toy that is soft, pliable but also bouncy. The machine will increase EBITDA by $215,000 per year for the next two years. Assume that operating cash flows occur at the end of each year. The machine's purchase price is $260,000 and the salvage value at the end of two years is 46,800. The machine is classified as 3 -year property. To run the Crazy Rubber production line the company will need to purchase an inventory of polydimethylsiloxane and boric acid for a total cost of $15,000. What is the initial cash flow for the Crazy Rubber project?

The initial cash flow is $ ?. (Round to the nearest dollar. Enter any cash outflow as a negative amount.)

Explanation / Answer

Answer:

Initial Cash Flow for Crazy Rubber Project = Cash Outflow for purchase of machine + Initial Working Capital outflow
Initial Cash Flow for Crazy Rubber Project = $260,000 + $15,000
Initial Cash Flow for Crazy Rubber Project = $275,000

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