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This is a capital budgeting problem. You are starting a fishing company in Hilo. In order to start the company you will buy a boat
This is a capital budgeting problem. You are starting a fishing company in Hilo. In order to start the company you will buy a boat for $48,000 today. It will cost you $2,000 to modify the boat to meet your needs. In addition, you will need to have $3,000 of net working capital available for your company at all times. Annual Sales for the Business will be $107,000. Operating Expenses will be $25,000 per year (the $25,000 does not include depreciation). All operating expenses are cash operating expenses that will be paid at the end of the operating year. You will depreciate the boat as modified using 3 year straight line depreciation to a salvage value of $20,000. At the end of the second year you will sell the boat and close the business. You expect to sell the boat as modified at the end of the second year for $25,000. You will recover all working capital that you invested in the company when you close the business. Your tax rate is 15 percent and your cost of capital is 20 percent. Compute the operating cash flows for this project for capital budgeting purposes (MAKE SURE TO PLACE ONLY THE OPERATING CASH FLOWS HERE. YOU WILL BE ASKED FOR OTHER CASH FLOWS IN OTHER QUESTIONS)
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