Question
Calculating 'cash flows at the end' In Year zero, Freddys Farms (FFS) will purchase new machinery for $50,000 for use in a five-year project. The
Calculating 'cash flows at the end'
In Year zero, Freddys Farms (FFS) will purchase new machinery for $50,000 for use in a five-year project. The tax office has specified that the new machinery has an effective life of twenty 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 $300,000.
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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