Relevant cash flow and timeline depiction For each of the following projects, determine the net cash flows, and depict the cash flows on a time line. a. A project that requires an initial investment of $121,000 and will generate annual operating cash inflows of $22,000 for the next 16 years. In each of the 16 years, maintenance of the project will requir $5,100 cash outflow. b. A new machine with an installed cost of $90,000. Sale of the old machine will yield $33,000 after taxes. Operating cash inflows generated by the replacement will exceed the operating cash inflows of the old machine by $17,000 in each year of a 6-year period. At the end of year 6, liquidation of the new machine will yield $17,000 after taxes, which is $11,000 greater than the after-tax proceeds expected from the old machine had it been retained and liquidated at the end of year 6. C. An asset that requires an initial investment of $2 million and will yield annual operating cash inflows of $302,000 for each of the next 12 years. Operating cash outlays will be $19,000 for each year except year 5, when an overhaul requiring an additional cash outlay of $508,000 will be required. The asset's liquidation value at the end of year 12 is expected to be zero. a. A project that requires an initial investment of $121,000 and will generate annual operating cash inflows of $22,000 for the next 16 years. In each of the 16 years, maintenance of the project will require a $5,100 cash outflow. (Select all the choices that apply.) A. At year, the initial investment will be - $121,000. For each of the years 1 thru 16, the net cash flow will be $22,000 - $5,100 = $16,900. B. Year 0 0 1 2 3 3 14 15 16 + Cash flow - $121,000 $16,900 $ 16,900 $16,900 $16,900 $16.900 $16,900 C. At year 0, the initial investment will be - $121,000. For each of the years 1 thru 16, the net cash flow will be $22,000. D. This is a conventional cash flow pattern, where the cash inflows are of equal size, which is referred to as an annuity. b. A new machine with an installed cost of $90,000. Sale of the old machine will yield $33,000 after taxes. Operating cash inflows generated by the replacement will exceed the operating cash inflows of the old machine by $17,000 in each year of a 6-year period. At the end of year 6, liquidation of the new machine will yield $17,000 after taxes, which is $11,000 greater than the after-tax proceeds expected from the old machine had it been retained and liquidated at the end of year 6. (Select all the choices that apply.) D A. Year 0 1 2 3 4 4 5 6 - Cash flow - $57,000 $17,000 - $ $17,000 $17,000 $17,000 $17,000 $17,000 B. At year 0, the initial investment will be - $90,000+ $33,000 = - $57,000. For each of the years 1 thru 5, the net cash flow will be $17,000. At year 6, the net cash flow will be $17,000+ $17,000 - $6,000 = $28,000. OC. This is a conventional cash flow pattern, where the subsequent cash inflows vary, which is referred to as a mixed stream. D. Year 0 2 3 4 4 5 6 + Cash flow - $57,000 $17,000 $17,000 $17,000 $17,000 $17,000 $28,000
