Question

A 4-year project has an annual operating cash flow of $55,500. At the beginning of the project, $4,650 in net working capital was required, which will be recovered at the end of the project. The firm also spent $23,200 on equipment to start the project. This equipment will have a book value of $4,980 at the end of the project, but can be sold for $5,910. The tax rate is 40 percent. What is the Year 4 cash flow

Answer 1

Answer:

$65,668

Explanation:

The computation of the year 4 cash flow is shown below:

Year 4 cash flow is

= Operating cash flow + book value × tax rate + selling price × (1 - tax rate) + net working capital

= $55,500 + $4,980 × 0.40 + $5,910 × (1 - 0.4) + $4,650

= $55,500 + $1,992 + $8,196

= $65,668

We simply applied the above formula so that the year 4 cash flow could come