Part 2

What is the project cash flow in year 1?

Part 3

What is the project cash flow in year 2?

Part 4

What is the project cash flow in year 3?

Intro Due to high demand for wood, San Lorenzo Lumber is considering buying a new timber cutting machine to add to its existing stock. - The machine will cost $390,000 to purchase and $20,000 for shipping and installation. Last year, the firm cleared an unused area in its timber mill to make space for the machine, at a cost of $8,000. - The new cutting machine will allow the company to sell an additional 140,000 pieces of wood per year, at a price of $3 per piece. Variable costs, including timber, electricity and labor, are expected to add up to 80% of sales. - To make best use of the new machine, the company will need to increase its inventory of timber logs by $25,000. Since the firm uses trade credit when purchasing raw timber, accounts payable will increase by $12,000. - The cutting machine is expected to last 4 years and will then be sold for $35,000. It falls into the 3-year MACRS class, with depreciation rates as follows: \begin{tabular}{|lllll|} \hline Year & 1 & 2 & 3 & 4 \\ \hline Depreciation rate & 33% & 45% & 15% & 7% \\ \hline \end{tabular} The firm has a marginal tax rate (federal and state) of 34%. Part 1 Attempt 2/5 for 10 pts. What is the initial (year-0) project cash flow? Choose the right sign. Correct