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A firm is considering a project with the following information: Project will require purchase of a machine for $109,851.00 that is MACRS depreciable over a
A firm is considering a project with the following information:
- Project will require purchase of a machine for $109,851.00 that is MACRS depreciable over a five-year schedule. (no depreciation until end of year 1).
- Project will require immediate non-depreciable expenses of $27,420.00 TODAY (year 0).
- Project will have the following projected balance sheet values of NWC:
| YEAR | 0 | 1 | 2 |
|---|---|---|---|
| NWC Level | $4,000 | 10.00% of sales | 10.00% of sales |
- Sales for the project will be $47,726.00 per year, with all other expenses (excluding depreciation) at 51.00% of sales.
- The tax rate for the firm is 40.00%, while the cost of capital is 13.00%
*assume project goes beyond two years
What is the projects cash flow for year 2?
NOTE: MACRS schedule is
| MACRS Depreciation Schedules | |||
| YEAR | 3-year | 5-year | 7-year |
| 1 | 33.33% | 20.00% | 14.29% |
| 2 | 44.45% | 32.00% | 24.49% |
| 3 | 14.81% | 19.20% | 17.49% |
| 4 | 7.41% | 11.52% | 12.49% |
| 5 |
| 11.52% | 8.93% |
| 6 |
| 5.76% | 8.92% |
| 7 |
|
| 8.93% |
| 8 |
|
| 4.46% |
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