Expected sales and operating costs

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Reference no: EM131526747

Project A has the following expected sales and operating costs (these do not include depreciation). The project will cost $210,000 at Time 0 (the sole capital expenditure), the cost of capital is 12% and the IRS tax rate is 40%. The initial cost will be depreciated straight-line over the project’s three-year life. Half of the project’s initial cost will be funded by cash on hand, and the other half will be funded by corporate bonds which pay interest at a rate of 9%. The first interest payment will occur at Time 1.

Year 1 2 3

Sales 300,000 550,000 600,000

Costs 144,870 269,230 285,750

This firm collects 85% of the project’s revenue in cash at the time of the sale, 10% one year later and the remaining 5% one year after that. What is the project’s change in Accounts Receivable in Year 1, Year 2 and Year 3? Make sure to show your work.

Reference no: EM131526747

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