Question
Kelley Group is considering an investment of $2 million in an asset with an economic life of four years. The cash revenues and expenses in
Kelley Group is considering an investment of $2 million in an asset with an economic life of four years. The cash revenues and expenses in year 1 are expected to be $1.8m and $0.5m respectively. Both revenues and expenses are expected to grow at 3 percent per year. The asset will be fully depreciated to zero using the straight line method over its economic life. The salvage value of the asset is expected to be $0.3m at the end of the fourth year. Kelley Group also needs to add net working capital of $0.1m immediately, and this capital will be recovered in full at the end of the projects life. The tax rate is 40%. What is the investments cash flow in year 4? a. $1.1323m b. $1.4523m c. $1.3323m d. $1.3579m
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