Calculate annual operating cash flows

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Reference no: EM131859670

Consider the following project being evaluated by your company:

Initial price of the asset is $230,000 will require $20,000 transportation and $5,000 installation.

Will be depreciated S/L over 6 years to zero salvage.

Market value for the asset at end of 5 years is expected to be $50,000 (the asset will be operated for only 5 years)

Net investment in NWC in year 0 (at the initial period) of $30,000

Sales, first year, expected to be generated by the project $100,000

Annual cost of goods sold 60% of sales

Annual sales growth rate 4%

Marginal tax rate 30%

Cost of capital 10%

Calculate the depreciable base for the asset.

Calculate the project’s cash outflow in year 0 (Initial outlay)

Calculate Annual operating cash flows for year 1-5 (OCF)

Calculate the asset’s after tax salvage in year 5.

Calculate the project’s internal rate of return (IRR)

Check points:

NI in year 2 = (630) loss

NPV = (74,265.51)

Reference no: EM131859670

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