Clyne Industries Company wants to market its new Slammin Jammin Basketball Goal Set. To bring this product to the market will require the purchase of equipment costing Sh.650,000. Shipping and installation expenses associated with the equipment are estimated to be Sh.50,000. In addition, Clyne will incur incremental employee training and recruiting expenses of Sh.100,000, all of which will be incurred at time 0. Additional net working capital investments of Sh.50,000 will be required at time 0, Sh.25,000 in year 1, and Sh.10,000 in year 2. Revenues are expected to be Sh.250,000 in year 1 and grow at a rate of Sh.25,000 per year through year 5, then decline by Sh.25,000 per year until the project is terminated at the end of year 10. Annual operating expenses are expected to be Sh.80,000 in year 1 and to grow at a rate of Sh.10,000 per year until the end of the project life. Depreciation will be for a 5-year period for tax purposes. The salvage value of the equipment at the end of 10 years is expected to be Sh.50,000. The marginal, ordinary tax rate is 40 percent and the capital gains tax rate is 30 percent. Required: Compute the expected net cash flow for year 10, the last year in the life of the project
(c) Clyne Industries Company wants to market its new Slammin Jammin Basketball Goal
Set. To bring this product to the market will require the purchase of equipment costing
Sh.650,000. Shipping and installation expenses associated with the equipment are estimated
to be Sh.50,000. In addition, Clyne will incur incremental employee training and recruiting
expenses of Sh.100,000, all of which will be incurred at time 0. Additional net working
capital investments of Sh.50,000 will be required at time 0, Sh.25,000 in year 1, and
Sh.10,000 in year 2. Revenues are expected to be Sh.250,000 in year 1 and grow at a rate of
Sh.25,000 per year through year 5, then decline by Sh.25,000 per year until the project is
terminated at the end of year 10. Annual operating expenses are expected to be Sh.80,000 in
year 1 and to grow at a rate of Sh.10,000 per year until the end of the project life.
Depreciation will be for a 5-year period for tax purposes. The salvage value of the equipment
at the end of 10 years is expected to be Sh.50,000. The marginal, ordinary tax rate is 40
percent and the
Required:
Compute the expected net cash flow for year 10, the last year in the life of the project
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