Clyne Industries wants to market its new Slammin Jammin Basketball Goal Set. To bring this product to

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Clyne Industries wants to market its new Slammin Jammin Basketball Goal Set. To bring this product to the market will require the purchase of equipment costing $650,000. Shipping and installation expenses associated with the equipment are estimated to be $50,000. In addition, Clyne will incur incremental employee training and recruiting expenses of $100,000, all of which will be incurred at time 0. Additional net working capital investments of $50,000 will be required at time 0, $25,000 in year 1, and $10,000 in year 2. Revenues are expected to be $250,000 in year 1 and grow at a rate of $25,000 per year through year 5, then decline by $25,000 per year until the project is terminated at the end of year 10. Annual operating expenses are expected to be $80,000 in year 1 and to grow at a rate of $10,000 per year until the end of the project life. Depreciation will be under MACRS for a 7-year class asset. The salvage value of the equipment at the end of 10 years is expected to be $50,000. The marginal, ordinary tax rate is 40 percent and the capital gains tax rate is 30 percent. Compute the expected net cash flow for year 10, the last year in the life of the project.


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...
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Contemporary Financial Management

ISBN: 9780324289114

10th Edition

Authors: James R Mcguigan, R Charles Moyer, William J Kretlow

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