Galleon Industries is building a temporary manufacturing plant which will be completely removed after 5 years. The required initial cash outlays at Time 0 are as follows. Land --- $500,000 New building --- 2,000,000 Equipment --- 3,000,000 Galleon uses straight-line depreciation for tax purposes and will depreciate the building over 10 years and the equipment over 5 years. Galleon's effective tax rate is 40%. Revenues from the new plant are estimated at $1.5 million annually and cash expenses are estimated at $300,000 annually. At the end of the fifth year, the assumed sales values of the land and building are $700,000 and $800,000, respectively. The equipment will be removed at a cost of $80,000 and sold for $200,000. Galleon's net cash flow for period 5 would be a. $2,612,000. b. $1,040,000. c. $1,200,000 d. $2,660,000.
Galleon Industries is building a temporary manufacturing plant which will be completely removed after 5 years. The required initial cash outlays at Time 0 are as follows.
Land --- $500,000
New building --- 2,000,000
Equipment --- 3,000,000
Galleon uses straight-line
Revenues from the new plant are estimated at $1.5 million annually and cash expenses are estimated at $300,000 annually. At the end of the fifth year, the assumed sales values of the land and building are $700,000 and $800,000, respectively. The equipment will be removed at a cost of $80,000 and sold for $200,000. Galleon's net cash flow for period 5 would be
a. $2,612,000.
b. $1,040,000.
c. $1,200,000
d. $2,660,000.
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