Ebit

$2,971,375

$2,843,875

$2,931,375

$2,993,875

Depreciation

178,625

306,125

218,625

156,125

Taxes

1,010,268 -

966,918

- 996,668

- 1,017,918

Operating cash flow

$2,139,732

$2,183,082

$2,153,332

$2,132,082

We now have to worry about the nonoperating cash flows. Net working capital starts out at $1,150,000 and then rises to 25 percent of sales, or $1,500,000. This is a $350,000 change in net working capital.

Finally, we have to invest $1,250,000 to get started. In four years, the book value of this investment will be $390,500, compared to an estimated market value of $625,000 (half of the cost). The aftertax salvage is thus $625,000 - .34 X ($625,000 - 390,500) = $545,270.

When we combine all this information, the projected cash flows for Project X

Year

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