Bratton Stone Works is considering an expansion proposal that will require an outlay of $1 million for

Question:

Bratton Stone Works is considering an expansion proposal that will require an outlay of $1 million for land and $5 million for equipment. The equipment will be depreciated under MACRS rules as a 7-year class asset. The of the equipment at the end of 10 years is expected to be $1 million. The actual life of the project is expected to be 10 years. At the end of 10 years, Bratton hopes to sell the land for 1,800,000.Revenues from the project are expected to be $700,000 per year. Operating costs are expected to be $200,000 per year. The ordinary and capital gains tax rate for Bratton is 40 percent. The project will require an additional investment in working capital of $250,000 in year 0 and $150,000 at the end of year 1. What net cash flow will this project produce in year 10?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...