Question 05: TMC is considering expanding into a new variation of furniture that will use wrought iron as the main raw material. The necessary information related to the project is as follows

- The project will require allied to purchase a new equipment worth $800,000

- Inventory will increase by $150,000 and accounts payable will increase by $100,000. All other

working capital components will remain the same.

- The project will last for 4 years. The company forecast the following sales: 250,000 units in year

1; 270,000 units in year 2; 225,000 units in year 3 and 200,000 units in year 4.

- Each unit sales for $20

- The fixed cost of the project will be $1,000,000 per year, and the variable cost associated with

producing each unit is $15 per unit.

- The company uses a straight-line depreciation. For tax purpose, the asset is depreciated to zero.

- When the project is completed at the end of year 4, the company expects that it will be able to

salvage the equipment for $40,000 and that it will fully recover the NOWC.

- The estimated tax rate is 40%.

Calculate the estimated cash flow. [

Question 05: TMC is considering expanding into a new variation of furniture that will use wrought iron as the main raw material. The necessary information related to the project is as follows - - The project will require allied to purchase a new equipment worth $800,000 - Inventory will increase by $150,000 and accounts payable will increase by $100,000. All other working capital components will remain the same. - The project will last for 4 years. The company forecast the following sales: 250,000 units in year 1;270,000 units in year 2;225,000 units in year 3 and 200,000 units in year 4 . - Each unit sales for $20 - The fixed cost of the project will be $1,000,000 per year, and the variable cost associated with producing each unit is $15 per unit. - The company uses a straight-line depreciation. For tax purpose, the asset is depreciated to zerc - When the project is completed at the end of year 4 , the company expects that it will be able to salvage the equipment for $40,000 and that it will fully recover the NOWC. - The estimated tax rate is 40%. Calculate the estimated cash flow. [5 Marks]