Question
Gallatin, Inc., is considering an investment of $385,000 in an asset with an economic life of 5 years. The firm estimates that the nominal annual
Gallatin, Inc., is considering an investment of $385,000 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 $265,000 and $90,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 3 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 $65,000 in nominal terms at that time. The one-time net working capital investment of $20,000 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? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole dollar, e.g., 32.) Cash flow Year 0 $ Year 0 $ Year 2 $ Year 3 $ Year 4 $ Year 5 $
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