Question
Price, Inc., is considering an investment of $367,000 in an asset with an economic life of 5 years. The firm estimates that the nominal annual
Price, Inc., is considering an investment of $367,000 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 $247,000 and $72,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 3 percent. Price 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 $47,000 in nominal terms at that time. The one-time net working capital investment of $11,000 is required immediately and will be recovered at the end of the project. All corporate cash flows are subject to a 34 percent tax rate. |
What is the projects total nominal cash flow from assets for each year?
Cash flow Year 0$ Year 1$ Year 2$ Year 3$ Year 4$ Year 5$ |
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