Calculate and show the project cash flows

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Reference no: EM131993976

Davidson & Smith Company is considering an expansion of its production facilities which will allow the company to build and sell a new line of guitars. The project requires a $10,000,000 capital investment and the new product is expected to have only a three year life. The capital investment will be depreciated to zero over the project’s three year life. But at the end of the project the equipment can be sold for $150,000.

Incremental sales are projected to be $11,000,000 per year while annual costs (excluding depreciation) are projected to be $4,500,000. The project requires a $1,500,000 investment net working capital at the initial period. Use a 35% tax rate.

Calculate and show the project cash flows (CFFA) for years 0 through 3. SHOW YOUR WORK

Reference no: EM131993976

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