The Handler Mining Inc. is considering a new project with a life of 5 years. The project requires a machine that costs $228,300. This machine will be depreciated straight-line to a zero book value over 5 years. At the end of the project in Year 5, the machine can be sold for 10 percent of its original cost. Handler Mining Inc. needs to add net working capital of $25,000 immediately and the additional net working capital will be recovered in full at the end of the project’s life. The project is expected to generate annual sales of $325,000 and costs of $146,000. The tax rate is 18 percent and the required rate of return is 8 percent. What is the amount of the cash flow in the project’s final year?
The Handler Mining Inc. is considering a new project with a life of 5 years. The project requires a machine that costs $228,300. This machine will be depreciated straight-line to a zero book value over 5 years. At the end of the project in Year 5, the machine can be sold for 10 percent of its original cost. Handler Mining Inc. needs to add net working capital of $25,000 immediately and the additional net working capital will be recovered in full at the end of the project’s life. The project is expected to generate annual sales of $325,000 and costs of $146,000. The tax rate is 18 percent and the required rate of return is 8 percent. What is the amount of the cash flow in the project’s final year?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
Related questions
Question
The Handler Mining Inc. is considering a new project with a life of 5 years. The project requires a machine that costs $228,300. This machine will be
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:
9781111581565
Author:
Gaylord N. Smith
Publisher:
Cengage Learning