What is your initial negative cash flow at time zero

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Reference no: EM132020108

Suzy B. is a pilot retiring from American Airlines and wants to open a charter flight business in the Caribbean.

The Cessna Caravan plane she wants to purchase is $250,000 and will require $15,000 of cabin modifications.

She will need working capital of $40,000 to open the business. She expects revenues of $95,000 per year and expenses of $35,000 per year and wants to sell out and retire for good in five years.

Given how the Caravan historically retains its value, she expects it will still be worth $190,000 when she retires.

The plane will be depreciated straight-line to a zero salvage value over 10 years, based on current tax laws. The firm's marginal tax rate is 30% and the required rate of return is 11%.

What is your initial negative cash flow at time zero?

$290,000
$265,000
$305,000
$250,000

What are cash flows 1 - 4? (They are all the same)

$49,950
$95,000
$60,000
$130,000

What is the terminal cash flow (not including the year 5 operating cash flow)?

$172,750
$190,000
$165,000
$212,750

Reference no: EM132020108

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