Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
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. (2 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The New Public Finance

Authors: Inge Kaul, Pedro Condeicao

1st Edition

0195179978, 978-0195179972

More Books

Students also viewed these Finance questions