Chapter 11, Problem 11.2P

Net cash flow and time line depiction For each of the following projects, determine the net cash flows, and depict the cash flows on a timeline.

1. a. A project that requires an initial investment of $120,000 and will generate annual operating cash inflows of $25,000 for the next 18 years. In each of the 18 years, maintenance of the project will require a $5,000 cash outflow.
2. b. A new machine with an installed cost of 585,000. Sale of the old machine will yield $30,000 after taxes. Operating cash inflows generated by the replacement will exceed the operating cash inflows of the old machine by $20,000 in each year of a 6-year period. At the end of year 6, liquidation of the new machine will yield $20,000 after taxes, which is $10,000 greater than the after-tax proceeds expected from the old machine had ~ been retained and liquidated at the end of year 6.
3. c. An asset that requires an initial investment of $2 million and will yield annual operating cash inflows of $300,000 for each of the next 10 years. Operating cash outlays will be $20.000 for each year except year 6, when an overhaul requiring an additional cash outlay of $500,000 will be required. The asset's liquidation value at the end of year 10 is expected to be zero.