Reference no: EM133070273

1. Consider the following capital budgeting and cash flow estimation problem. You have developed a new energy drink that uses various vegetables. The drink is called V-DRINK. You have an existing building that you are using to produce V-DRINK. The building is fully depreciated. You determine a need to buy $400,000 in equipment. Shipping and installation is an additional $50,000. Additionally, you determine you will need to have $12,782 in inventory.

What is the total initial outlay associated with the project?

2. The equipment cost (equipment plus shipping and installation) can be depreciated at the rate of 44% the first year. The remaining 5 years (years 2-6), the depreciation will be equal to $30,000 per year. What is the amount of depreciation in year 1?

3. Based on some market research, you expect to sell around 200,000 bottles of V-DRINK a year at wholesale price of $2. Operating costs (excluding depreciation) are expected to be 50% of revenue. The firm's tax rate is 40%.

What is the annual operating cash flow associated with this project in year 2? (Note you will need to factor in $30,000 in depreciation in year 2 from the prior question).