Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Calculating 'cash flows at the end' Fanta Corporation ( FAN ) is a soft - drink manufacturer. In Year zero, FAN will purchase new machinery

Calculating 'cash flows at the end'
Fanta Corporation (FAN) is a soft-drink manufacturer. In Year zero, FAN will purchase new machinery for $200,000, which it expects to use for ten years. In Year zero, FAN agrees to sell the new bottling equipment in ten years time to Solo Corporation (a competitor) for $100,000.
According to the tax office, the new machinery purchased by FAN has a useful life of 15 years. Assume the company tax rate is 30%.
At the end of the project, FAN will pay a dividend to its shareholders which totals $100,000. For its own internal management reports, FAN will apply an effective life of 20 years to the new machinery.
In Year zero, the new machinery will require inventory to decrease by $10,000, and accounts payable to increase by $15,000 from the existing figure of $33,000.
What are the 'cash flows at the end'?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Strategic Public Finance

Authors: Stephen Bailey

1st Edition

0333922212, 978-033392221

More Books

Students also viewed these Finance questions