For each of the following projects, determine the relevant cash flows, and depict the cash flows on a time line. a. A project that requires an initial investment of $120,000 and will generate annual operating cash inflows of $25,000 for the next 18 years. In each of the 18 years, maintenance of the project will require a
For each of the following projects, determine the relevant cash flows, and depict the cash flows on a time line. a. A project that requires an initial investment of $120,000 and will generate annual operating cash inflows of $25,000 for the next 18 years. In each of the 18 years, maintenance of the project will require a
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:For each of the following projects, determine the
relevant cash flows, and depict the cash flows on a
time line.
a. A project that requires an initial investment of
$120,000 and will generate annual operating cash
inflows of $25,000 for the next 18 years. In each of the
18 years, maintenance of the project will require a
$5,000 cash outflow.
b. A new machine with an installed cost of $85,000.
Sale of the old machine will yield $30,000 after taxes.
Operating cash inflows generated by the replacement
will exceed the operating cash inflows of the old
machine by $20,000 in each year of a 6-year period. At
the end of year 6, liquidation of the new machine will
yield $20,000 after taxes, which is $10,000 greater
than the after-tax proceeds expected from the old
machine had it been retained and liquidated at the
end of year 6.
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