Bebop, Inc. is planning a project that requires purchasing some new, highly-efficient CD-burning equipment for $150,000. The freight will be $12,000, and Bebop will spend an additional $4,000 to have the equipment installed. At the end of the equipment's 10-year life, it will be scrapped at an after-tax cost of $2,000. (In other words, the company must spend $2,000 to haul the equipment to the junkyard.) Bebop expects that they will create new CDs at a much faster rate than they currently do, so their inventory of blank CDs will rise by $28,000. They also expect their Accounts Payable to rise by $22,000.
a) What is Bebop's total initial investment for this project? When will it occur?
b) What is the annual depreciation expense?
c) What is the terminal cash flow for this project? When will it occur?
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