Question
Mills Mining is considering an expansion project. The proposed project has the following features. The project has an initial cost of $771--this is also the
Mills Mining is considering an expansion project. The proposed project has the following features. The project has an initial cost of $771--this is also the amount which can be depreciated using the following depreciation schedule: Year 1 is 33%, Year 2 is 45%, Year 3 is 15%, and Year 4 is 7%. If the project is undertaken, at t = 0 the company will need to increase its inventories by $71, and its accounts payable will rise by $35. This net operating working capital will be recovered at the end of the projects life (t = 4). If the project is undertaken, the company will realize an additional $701 in sales over each of the next four years (t = 1, 2, 3, 4). The companys operating cost (not including depreciation) will equal $444 a year. The companys tax rate is 40 percent. At t = 4, the projects economic life is complete, but it will have a salvage value of $266. The projects WACC = 10 percent. What are the one-time cash flows associated with ending the project (i.e. terminal Cash Flows)? Note, we only want terminal cash flows, not operating cash flows in the last year. Show your answer to the nearest $.01.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started