Question
Calculating 'cash flows at the end' In Year zero, Freddys Farms (FFS) will purchase new machinery for $50,000. The tax office has specified that assets
Calculating 'cash flows at the end'
In Year zero, Freddys Farms (FFS) will purchase new machinery for $50,000. The tax office has specified that assets such as the new machinery purchased by FFS have an effective life of ten years.
In Year zero, this new machinery will require inventory to increase by $10,000, and accounts payable to decrease by $5,000 from the current figure of $20,000.
In Year zero, FFS agrees to sell the new machinery in five years time to an unrelated company for $20,000. In Year five, FFS will pay a dividend which totals $200,000.
For FFS internal management reports, a useful life of 15 years will be used to depreciate the new machinery. Assume the company tax rate is 30%.
What are the 'cash flows at the end'?
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