Question $27$

$3$ pts

A fast$-$food restaurant wants to expand its business by opening a salad bar.

The project has a life of $7$ years and requires an initial capital investment of $$2,800,000$ in dining equipment and facilities. These assets will be straightline depreciated to zero over the project life. The estimated market value of these assets at the end of the project is $$200,000.$

The restaurant hired experts to conduct a sales analysis for $$60,000,$ which was paid completely six months ago.

According to the analysis report, the salad bar will generate annual sales of $$1,400,000$ after adjusting the erosion effect of the project $($e$.$g$.,$ existing customers switch from their routine menus$).$ Also, the project is expected to incur annual costs of $$600,000.$

The salad bar will be built on land currently owned by the restaurant. The land has been prepared for the project and can be sold for $$400,000$ today.

The project requires an initial investment in net working capital of $$100,000$ at the beginning of the project. The restaurant expects to fully recover this investment at the end of the project.

The restaurant is subject to pay $21\%$ corporate income tax and $20\%$ capital gains tax.

A$.(1$ point$)$ Determine the initial cash flow from the project.

B$.(1$ point$)$ Determine the operating cash flow from the project.

C$.(1$ point$)$ Determine the terminal cash flow from the project.

Note: Show your calculation steps briefly and clearly for all subquestions.