Question
Medtek Inc. has developed a breathalyzer device that would allow individuals to detect their blood alcohol level by breathing into it. The device would be
Medtek Inc. has developed a breathalyzer device that would allow individuals to detect their blood alcohol level by breathing into it. The device would be sold through drug stores and other retail outlets at a price of $60.00 per unit. To bring this product to the market will require the purchase of equipment costing $700,000. Additional net working capital investment of $80,000 will be required at time 0 and another $20,000 in year 1. Beyond year 1 no further investments in net working capital are anticipated. Revenues are expected to be $500,000 in year 1 and expected to grow at a rate of $100,000 per year through year 5 and then level off (that is, remain constant). Annual operating expenses are expected to be $250,000 in year 1 and to grow at a rate of 5 percent per year until the end of the project life. The equipment will be depreciated using the straight line method down to a zero value over five years. The equipment at the end of 10 years (end of project life) is expected to be sold for $50,000. The tax rate is 40%.
Calculate the net cash flow in year 10 (only year 10, not all the years).
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