Question

A 4-year project has an annual operating cash flow of $53,000. At the beginning of the project, $4,400 in net working capital was required, which will be recovered at the end of the project. The firm also spent $22,700 on equipment to start the project. This equipment will have a book value of $4,780 at the end of the project, but can be sold for $5,760. The tax rate is 34 percent. What is the Year 4 cash flow

Answer 1

Answer: $62,826.80

Explanation:

Year 4 cashflow = Operating cashflow + Net working capital + After-tax salvage value

After-tax salvage value = Salvage price - tax on disposal gain

= 5,760 - (34% * (5,760 - 4,780))

= $5,426.80

Year 4 Cashflow = 53,000 + 4,400 + 5,426.80

= $62,826.80