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Your firm is evaluating whether to invest in an equipment that costs $30,000, and will be fully depreciated in five years using the straight-line depreciation
Your firm is evaluating whether to invest in an equipment that costs $30,000, and will be fully depreciated in five years using the straight-line depreciation method. Your firm projects that the investment will generate an annual revenue of $20,000 with an annual cost of $10,000. Your firm would also need additional net working capital of $10,000. The cost of capital is 8%, and the tax rate is 20%. (a) Calculate the initial outlay of the investment. (2 marks) (b) Determine the annual operating cash flow (OCF) of this investment? (2 marks) (c) Suppose the firm is able to sell the equipment for $5,000 at the end of the fifth year. Calculate the terminal cash flow of this investment
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