You are analyzing a project that requires an initial investment in fixed assets of $10,000. The assets are depreciated over a 10-year life to a $2,000 salvage value. The project requires an initial increase in Net Working Capital of $3,000, and this money will be recovered at the end of the projects 5-year life. The project will result in incremental annual revenues of $7,000 and annual costs (note: these do NOT include depreciation) of $3,000. The fixed assets can be sold after 5 years for $6,000. The firm is in the 20% marginal tax bracket and has a 9% cost of capital.

1. What is the cash flow in the 2^nd year of the project?

2. What is the total cash flow in the 5^th year of the project?