Reference no: EM132512141

You are the financial manager of Romualdez Manufacturing Company (a large and highly profitable manufacturing company). You are currently evaluating a project proposal involving the production of new product line. The proposed project will have a 3-year life and will require the purchase of new capital equipment with a total purchase price of P2,000,000. In addition, the project will require an initial investment of P250,000 in supplies and spare parts for the equipment, with 60% of this amount financed with trade credit. The new product line is expected to increase cash sales by P800,000 per year and increase cash operating expenses by P350,000 per year. The new equipment will have a 5-year life. At the end of three years, you expect to terminate the project, liquidate the supplies and parts and sell the equipment for P100,000. Assume that the marginal tax rate is 34%.

Based on the information given above, determine the following (Show your computation):

Question a. What is the net investment cash outflow for this project?

Question b. What is the operating cash flow for the 1st year of the project's life?

Question c. What is the operating cash flow for the 2nd year of the project's life?

Question d. What is the operating cash flow for the 3rd year of the project's life?

Question e. What is the tax effect of selling the equipment at the end of the 3rd year?

Question f. What is the project-disposal cash flow (not including the annual operating cash flow)?