XYZ inc. considers an investment project that requires $200,000 in new equipment and $30,000 in extra NWC at the beginning of the project. The NWC will need to be increase by another $10,000 at the end of year t=1 and it will remain at the $40,000 level until the project is completed. The projects will lead to an increase in operating pre- tax net revenue of $75,000 per year and will last for 3 years. At the end of the project (beginning of year t=6), the equipment can be sold for the salvage value of $70,000. The equipment belongs to the CCA class with d=30%, the corporate income tax rate is 40%, and the cost of capital is 7%. Find cash flow at t=1 and 2
XYZ inc. considers an investment project that requires $200,000 in new equipment and $30,000 in extra NWC at the beginning of the project. The NWC will need to be increase by another $10,000 at the end of year t=1 and it will remain at the $40,000 level until the project is completed. The projects will lead to an increase in operating pre- tax net revenue of $75,000 per year and will last for 3 years. At the end of the project (beginning of year t=6), the equipment can be sold for the salvage value of $70,000. The equipment belongs to the CCA class with d=30%, the corporate income tax rate is 40%, and the cost of capital is 7%. Find cash flow at t=1 and 2
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:XYZ inc. considers an investment project that
requires $200,000 in new equipment and $30,000
in extra NWC at the beginning of the project. The
NWC will need to be increase by another $10,000
at the end of year t=1 and it will remain at the
$40,000 level until the project is completed. The
projects will lead to an increase in operating pre-
tax net revenue of $75,000 per year and will last for
3
At the end of the project (beginning of year
years.
t=6), the equipment can be sold for the salvage
value of $70,000. The equipment belongs to the
CCA class with d=30%, the corporate income tax
rate is 40%, and the cost of capital is 7%.
Find cash flow at t=1 and 2
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