A 4-year project has an annual operating cash flow of $58,000. At the beginning of the project, $4,900 in net working capital was required, which will be recovered at the end of the project. The firm also spent $23,700 on equipment to start the project. This equipment will have a book value of $5,180 at the end of the project, but can be sold for $6,060. The tax rate is 35 percent. What is the Year 4 cash flow?

Question

Joselyn Patel

Business

23 May, 06:34

A 4-year project has an annual operating cash flow of $58,000. At the beginning of the project, $4,900 in net working capital was required, which will be recovered at the end of the project. The firm also spent $23,700 on equipment to start the project. This equipment will have a book value of $5,180 at the end of the project, but can be sold for $6,060. The tax rate is 35 percent. What is the Year 4 cash flow?

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Answers (1)

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Guillermo Berry · Answer 1

The Year 4 cash flow is $68,652

Explanation:

In order to calculate what is the Year 4 cash flow we would have to use the following formula:

Cash Flow in Year 4 = Annual Cash Flow + Working Capital Released + Book Value of equipment + After-tax profit on sale of equipment

Cash Flow in Year 4 = $58,000 + $4,900 + $5,180 + ($6,060 - $5,180) (1 - 0.35)

Cash Flow in Year 4 = $68,652

The Year 4 cash flow is $68,652