Compute the project''s cash flows of year 0

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A project will produce annual sales of $100,000 with fixed costs of $46,250 for four years. During the life of the project, inventory will be lowered by $20,000 and accounts receivable will increase by $35,000. Accounts payable will increase by $10,000. The project requires the purchase of equipment at an initial cost of $120,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating a $25,000 cash flow. At the end of the project, net working capital will return to its normal level. The tax rate is 20%.

(1) Compute the project's cash flows of year 0? Year 1? Year 2? Year 3? Year 4? Year 5?

Reference no: EM132506141

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