Solution-Terminal cash flow for the project in year

Terminal cash flow for the project in year

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Reference no: EM132443356

Use the following information to answer questions 1 - 4

ABC Inc is considering a new capital budgeting project that will last for 3 years. Initial investment outlay for the project equipment is expected to be $110,000. The equipment will be straight-line depreciated over 3 year period. The expected market value of project assets is forecasted to be $50,000 when the project is liquidated at the end of the 3^rd year. Project will require $5,000 net working capital investments in years 1 and 2. ABC Inc's cost of capital is 12% and the project does not have a distinct risk profile. Based on extensive research, analysts have prepared the following incremental cash flows:

Year	0	1	2	3
Sales (Revenue)		$100,000	$100,000	$100,000
- Cost of Goods Sold (50% of sales)		$50,000	$50,000	$50,000
Depreciation		$36,667	$36,667	$36,667
EBIT		$13,333	$13,333	$13,333
- Taxes (35%)		$4,667	$4,667	$4,667
EBIT (1-T)		$8,666	$8,666	$8,666
Depreciation		$36,667	$36,667	$36,667
Change in Net Working Capital		-$5,000	-$5,000	0
Capital Expenditure	-$110,000

1. The end of year 1 after tax project cash flow is?

2. The after tax project cash flow including the terminal cash flow for the project in year 3 is?

3. The NPV for ABC Inc's project is?

4. The IRR for the project is?

(Please show calculations)

Reference no: EM132443356

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Terminal cash flow for the project in year

Reference no: EM132443356

Reference no: EM132443356

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