project requires an initial investment of P300,000 on equipment. The project will generate sales amounting to P150,000 for year 1 and will grow by 20% each year for years 2-4. Contribution margin is 70% of sales. Working capital is anticipated to be variable at 15% of revenues; the working capital investment must be made at the beginning of each period, and will be recovered in full at the end of year 4. Equipment will be sold at its book value at the end of year 4. The tax rate is 40%. What is the net cash flow to the firm in year 4?
project requires an initial investment of P300,000 on equipment. The project will generate sales amounting to P150,000 for year 1 and will grow by 20% each year for years 2-4. Contribution margin is 70% of sales. Working capital is anticipated to be variable at 15% of revenues; the working capital investment must be made at the beginning of each period, and will be recovered in full at the end of year 4. Equipment will be sold at its book value at the end of year 4. The tax rate is 40%. What is the net cash flow to the firm in year 4?
Chapter9: Capital Budgeting Techniques
Section: Chapter Questions
Problem 15PROB
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The project requires an initial investment of P300,000 on equipment. The project will generate sales amounting to P150,000 for year 1 and will grow by 20% each year for years 2-4. Contribution margin is 70% of sales.
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