Question
Gallatin, Inc., is considering an investment of $372,000 in an asset with an economic life of 5 years. The firm estimates that the nominal annual
Gallatin, Inc., is considering an investment of $372,000 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 $252,000 and $77,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 5 percent. The company 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 $52,000 in nominal terms at that time. The one-time net working capital investment of $13,500 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 projects total nominal cash flow from assets for each year?
Cash flow | |||
Year 0 | $ | ||
Year 0 | $ | ||
Year 2 | $ | ||
Year 3 | $ | ||
Year 4 | $ | ||
Year 5 | $ | ||
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