What are the year one and year two net cash flows

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Reference no: EM13928725

Locus Quintatus, Inc., a highly profitable maker of customized chariots, is planning to introduce a new model shortly. The firm must purchase equipment immediately at a cost of $900,000. Freight and installation costs for this equipment will be $100,000. The equipment will be depreciated as a 7-year class asset under MACRS. During the first year, Locus will have incremental operating expenses of $300,000 that are attributable to this project. Locus expects to be able to sell 1,000 chariots during year 2 at an average price of $800 each and to incur operating expenses of $300,000. Also, Locus expects its net working capital investment will increase by $50,000 during year 2. (Assume all operating costs and revenues are incurred at the end of each year.) The marginal tax rate for Locus is 40 percent. What is the required net investment, and what are the year 1 and year 2 net cash flows?

Reference no: EM13928725

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