Question
You have the following information about a project: Year 1 2 3 4 Revenues 80000 90000 100000 70000 Labor Costs 45000 45000 45000 45000 Raw
You have the following information about a project:
Year | 1 | 2 | 3 | 4 |
Revenues | 80000 | 90000 | 100000 | 70000 |
Labor Costs | 45000 | 45000 | 45000 | 45000 |
Raw Material Costs | 25000 | 30000 | 35000 | 20000 |
To implement the project, you need to buy a machine worth $20,000 right now. IRS rules prescribe depreciating the machine over 4 years. At the end of the 4 years, the machine has no salvage value. You must set aside inventory worth $5,000 right now. This inventory increases by 10% every year before it goes to zero at the end of the 4th year. The opportunity cost of capital is 12% and the relevant tax rate is 30%.
What is the cash flow due to change in working capital at the end of the 4th year?
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