Reference no: EM132816093

The Nguyen Enterprises is planning to open a new distribution center in East Texas. The distribution center will be leased at an annual lease rate of $90,000 per year. The company expects to close the facility at the end of 10 years. The cost of the equipment for "upfitting" this warehouse is estimated to be $1.0 million. This cost will be depreciated for tax purposes using 7-year MACRS depreciation rates. The salvage value of the equipment is estimated to be $250,000 at the end of year 10. Cost savings associated with operating this facility are expected to be $300,000/year for the first 5 years, $400,000/year for the next 3 years, and $150,000 per year thereafter. There will be net working capital investments required totaling $100,000 in year 1 and $25,000 in year 2. The company's marginal ordinary tax rate is 40 percent and the capital gains rate is 20 percent.

Compute the project's net cash flows for year 10.