Boudreaux Chemical Corp. is considering building a new plant to market a new product, "GaseXtension." This new product will increase the gas mileage for most vehicles by 30%. A market study indicates that there would be considerable demand for the product. This new chemical will be sold to service stations, retail stores, etc. GaseXtension is added to a vehicles gas through its gas tank. The following information has been gathered to perform the economic analysis (capital budgeting).

The land was purchased by BBC 12 years ago for $650,000 and its current market value after taxes is $4,000,000. The plant and equipment will cost $6,000,000.The depreciation method will be straight line for 5 years. The project will be analyzed for a 5 year period (terminate at end of 5 years). If the plant is built, current assets will increase at the initial investment by $1,500,000 while current liabilities will increase by $800,000 (t=0). At the end of the 5th year, the plant, equipment and the land will sell for $3,500,000 after taxes. If the project goes forward the following Pro Forma Income Statements apply:

Year 1 2 3, 4, 5

Sales 8 10 16

CGS 4 5 8

Gross 4 5 8

Admin/Other 1 1 1

EBDT 3 4 7

Taxes are 40% and the discount rate is 10%

BBC's capital budgeting cash flow worksheet for GASX

Initial investment T=0 IN 000,000's

Plant & Equipment -$6.0

Land $

Change in working capital:

Increase in CA -$1.5

Increase in CL $

Total $

Terminal Cash Flow T = 5 in 000,000's

Sell M, L & E $3.5

Decrease in CA +$1.5

Decrease in CL $

Total $

10. The total Terminal Cash Flow in 000,000's is

A. -4.20 B. -1.3 C. 4.20 D. NONE

Solution required:

Total Terminal Cash Flow in 000,000s is

A. -4.2 B. -1.3 C. 4.20 D. NONE