Rick Barr Inc. is considering a new product line that has expected sales of $500,000 per year for each of the next 5 years. New equipment that is required to produce the new product will cost $800,000. The equipment has a useful life of 5 years and an $80,000 salvage value and will be sold at the end of year 5 for its salvage value. Total variable costs of the product line are $230,000 per year, total fixed costs (not including depreciation) will be an additional $100,000 per year and the initial working capital investment, to buy inventory, will be $10,000. The discount rate (interest rate) for the project is 10% and the company’s tax rate is 35%. What is the total cash flow of year 5 for the company? $250,900 $160,900 $240,900 $256,750
Rick Barr Inc. is considering a new product line that has expected sales of $500,000 per year for each of the next 5 years. New equipment that is required to produce the new product will cost $800,000. The equipment has a useful life of 5 years and an $80,000 salvage value and will be sold at the end of year 5 for its salvage value. Total variable costs of the product line are $230,000 per year, total fixed costs (not including
- $250,900
- $160,900
- $240,900
- $256,750
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