Question
A two-year project has an initial requirement of $500,000 for fixed assets and $50,000 for net working capital. The fixed assets will be depreciated using
A two-year project has an initial requirement of $500,000 for fixed assets and $50,000 for net working capital. The fixed assets will be depreciated using MACRS and the fixed asset falls into the three-year MACRS class. Depreciation rates for years 1 and 2 are 0.3333 and 0.4445. The estimated salvage value is $120,000. All of the net working capital will be recouped at the end of the 2 years. Management estimates that sales revenues less costs will be $700,000 per year for years 1 and 2. The discount rate is 9 percent and tax rate is 35 percent. What are the projects cash flows for years 0, 1, and 2?
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