Question
Etonic Inc. is considering an investment of $384,000 in an asset with an economic life of 5 years. The firm estimates that the nominal annual
Etonic Inc. is considering an investment of $384,000 in an asset with an economic life of 5 years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $264,000 and $89,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 5 percent. Etonic will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $64,000 in nominal terms at that time. The one-time net working capital investment of $19,500 is required immediately and will be recovered at the end of the project. All corporate cash flows are subject to a 34 percent tax rate.
What is the project's total nominal cash flow from assets for each year?
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