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The project requires an initial investment of $300,000 on equipment and is depreciated over 6 years. Working capital increased $18,000 at the beginning of the project and will be recovered in full at the end of year 4. The equipment will be sold at its book value at the end of year 4. The tax rate is 40%. REVENUES $120,000 $140,000 $160,000 $180,000 COST OF GOODS SOLD $36,000 $42,000 $48,000 $54,000 DEPRECIATION $80,000 $60,000 $40,000 $20,000 EBIT $4,000 $38,000 $72,000 $106,000 What is the TOTAL net cash flow to the firm in year 4? A) $63,600 B) $83,600 C) $81,600 D) $183,600 E) $201,600

The project requires an initial investment of $300,000 on equipment and is depreciated over 6 years. Working capital increased $18,000 at the beginning of the project and will be recovered in full at the end of year 4. The equipment will be sold at its book value at the end of year 4. The tax rate is 40%. REVENUES $120,000 $140,000 $160,000 $180,000 COST OF GOODS SOLD $36,000 $42,000 $48,000 $54,000 DEPRECIATION $80,000 $60,000 $40,000 $20,000 EBIT $4,000 $38,000 $72,000 $106,000 What is the TOTAL net cash flow to the firm in year 4? A) $63,600 B) $83,600 C) $81,600 D) $183,600 E) $201,600

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The project requires an initial investment of $300,000 on equipment and is depreciated over 6 years. Working capital increased $18,000 at the beginning of the project and will be recovered in full at the end of year 4. The equipment will be sold at its book value at the end of year 4. The tax rate is 40%. REVENUES $120,000 $140,000 $160,000 $180,000 COST OF GOODS SOLD $36,000 $42,000 $48,000 $54,000 DEPRECIATION $80,000 $60,000 $40,000 $20,000 EBIT $4,000 $38,000 $72,000 $106,000 What is the TOTAL net cash flow to the firm in year 4? A) $63,600 B) $83,600 C) $81,600 D) $183,600 E) $201,600
Transcribed Image Text:The project requires an initial investment of $300,000 on equipment and is depreciated over 6 years. Working capital increased $18,000 at the beginning of the project and will be recovered in full at the end of year 4. The equipment will be sold at its book value at the end of year 4. The tax rate is 40%. REVENUES $120,000 $140,000 $160,000 $180,000 COST OF GOODS SOLD $36,000 $42,000 $48,000 $54,000 DEPRECIATION $80,000 $60,000 $40,000 $20,000 EBIT $4,000 $38,000 $72,000 $106,000 What is the TOTAL net cash flow to the firm in year 4? A) $63,600 B) $83,600 C) $81,600 D) $183,600 E) $201,600
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