A 4-year project has an annual operating cash flow of $56,500. At the beginning of the project, $4,750 in net working capital was required, which will berecovered at the end of the project. The firm also spent $23,400 on equipment to start the project. This equipment will have a book value of $5,060 atthe end of the project, but can be sold for $5,970. The tax rate is 35 percent. What is the Year 4 cash flow?Multiple ChoiceO$67,539$21,753$57,402$66,902$65,131

The net amount of cash that a firm generates or uses over the course of a given time is known as…

Answered: What is the Year 4 cash flow?

Business

Finance

What is the Year 4 cash flow?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 17E: Postman Company is considering two independent projects. One project involves a new product line,...

See similar textbooks

Related questions

Q: You tell your broker you want to buy a 20-year government bond. He has one for sale that pays a 5%…

A: Using the initial yield, calculate the bond price using the PV function in Excel

Q: Puzzles Galore has a net income of $400, total assests of $2,600, total equity of $1600, and…

A: Net Income = ni = $400Total Assets = ta = $2600Total Equity = te = $1600Dividend = d = $35

Q: NPV A project has an initial cost of $40,000, expected net cash inflows of $10,000 per year for 6…

A: Net Present Value (NPV) is a discounting capital budgeting decision technique. NPV is calculated by…

Q: The stated interest rate on your account is 7.2% interest paid quarterly your effective rate of…

A: Nominal interest rate is 7.2% paid quarterlyCompounding frequency "n" is 4To Find:Effective rate of…

Q: Reese bought Acme, Inc. for $40 per share two years ago. Today, Acme is trading at $72 per share.…

A: In this case, it is required to calculate the Reese's annualized return by using the compound…

Q: The value of any asset is the PV of future cash flows it is expected to provide. Calculate the PV of…

A: Required Rate of Return = r = 5%Cash Flow for Year 0 = cf0 = -200Cash Flow for Year 1 = cf1 =…

Q: wo 30-year maturity mortgage-backed bonds are issued. The first bond has a par value of $10,000 and…

A: Bond valueBond value refers to the current price of the bond as per the market rate or return and…

Q: Compute the present value of an annuity of $621 per year for 25 years, given a discount rate of 6…

A: Present value is an estimate of the present value of future cash values that may be received at a…

Q: PI Equity (PIE) invested in a biotech company (BIO) with $5 million of EBITDA. PIE paid $35 million…

A: PIE paid $35 million, with 30% financed at a rate of 6% over three years. So, the equity investment…

Q: Assume you graduate from university with a $40,000 student loan. If your interest rate is fixed at…

A: The present value of monthly payments over a 20-year period should be equal to the amount of the…

Q: Esfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed…

A: The NPV analysis is conducted to determine the profitability of a project. It uses the concept of…

Q: Assume that the following spot exchange rates exist today: £1 = $1.50 C$1 = $0.75 £1 = C$2 Assume no…

A: Triangular arbitrage is a foreign exchange trading strategy that exploits inconsistencies in…

Q: Sugar Skull Corporation uses no debt. The weighted average cost of capital is 8.3 percent. The…

A: Cost of Equity (WACC)=8.3%=0.083 Tax Rate=25%=0.25Formulae Used:EBIT=in math mode at position 7:…

Q: Use the following information to answer the question that follow: Net Income : $205,000 Profit…

A: days’ sales in receivables =

Q: Find the monthly payment needed to amortize-principal and interest for the fixed-rate mortgage. Use…

A: PV = A * wherePV = present value of annuityA = periodic paymentsr = interest raten = time period

Q: Consider a firm that had been priced using a 12 percent growth rate and a 14 percent required…

A: According to Gordon's growth model ,Po = wherePo = stock priceDo = current dividend paidg = growth…

Q: You are trying to value the following project for your company. You know that the project will…

A: Free Cash flow of Year 4 = Free cash of Year 3 * (1+g)= 37 * (1+0.015)= $ 37.555 millionCalculation…

Q: Cost of debt using both methods (YTM and the approximation formula) Currently, Warren Industries can…

A: Given:

Q: Lakonishok Equipment has an investment opportunity in Europe. The project costs €9.5 million and is…

A: The net present value is the difference between the present value of cash flows in the future and…

Q: Explain what is meant by trade-off theory.

A: The trade-off theory, in the context of finance, refers to a fundamental concept that businesses and…

Q: A company has a loan of 80,000 to be paid in 20 level annual payments. The interest and the…

A: Loans are paid by annual payments that carry the interest and loan amount but annual payments are…

Q: The Green Mortgage Company has originated a pool containing 75 ten-year fixed interest rate…

A: “Since you have posted a question with multiple sub parts, we will provide the solution only to the…

Q: 29. A potential investor in a property desires a 14% return but the long of property is expected to…

A: Required rate from the property depends the risk involved in the property and rate of debt in the…

Q: b. What is Calandra's breakeven price on the option purchased in part a? c. Using your answer from…

A: A call option gives the right but not the obligation to buy at the strike price. We can determine…

Q: Duo Corporation is evaluating a project with the following cash flows: Year Cash Flow 0 −$ 15,200 1…

A: MIRR refers to the modified IRR which is more appropriate when there are series of cash flows with a…

Q: Calculate the expected rate of return, , for Stock B ( = 12.00%.) Do not round intermediate…

A: Expected Return = Σ of Probability X Return ProbabilityReturnStock AStock BStock AStock…

Q: Consider the following 3 assets portfolio: Asset US Equity Intl. Equity US Corporate Bonds…

A: Portfolio standard deviation or portfolio variance depends not only on the standard deviation of…

Q: WACC-Book weights and market weights Webster Company has compiled the information shown in the…

A: The price at which an asset, good, or service may now be purchased or sold in a free and open market…

Q: K Metals is currently operating at full capacity. The profit margin and the dividend payout ratio…

A: When sales will grow then fixed assets and working capital will increase but retained earnings will…

Q: Your company is offering a mortage loan with the following terms: 5.00% annual interest rate. Period…

A: A mortgage loan is a financial arrangement where a lender provides funds to a borrower to purchase…

Q: If you have borrowed 346 dollars using a pure discount loan for 6 years, where you must pay 7% in…

A: We need to use FV formula to calculate amount to be payback after 6 yearsFV =PV(1+r)nwhereFV= future…

Q: You have just taken out a $24,000 car loan with a 7% APR, compounded monthly. The loan is for five…

A: When the borrower borrows a loan from the lender, he has to pay a rate of interest on the borrowed…

Q: Benford Inc. is planning to open a new sporting goods store in a suburban mall. Benford will lease…

A: Variables in the question:Cost of equipment and fixtures = $200,000Depreciation= 5-year period on a…

Q: You are the financial analyst for a tennis racket manufacturer. The company is considering using a…

A: The net present value is the present value of all the future cash flows subtracted from the initial…

Q: The preferred stock of ABC pays a constant $2.5 per share dividend. The common stock of ACME just…

A: Common stocks are the stocks that can be owned by the actual owner of the company and who has voting…

Q: Today is 1 July, 2019. Siobhán has a portfolio which consists of two different types of financial…

A: Portfolio duration is the weighted sum of the durations of all securities held in the portfolio. The…

Q: What is the firm's cash flow from financing?

A: Cash flow from financing activities is one of the three main categories in the statement of cash…

Q: Find i (the rate per period) and n (the number of periods) for the following annuity. Semiannual…

A: In finding out the present value or future value of the annuity the compounding of interest and…

Q: Charles Lackey operates a bakery in Idaho Falls, Idaho. Because of its excellent product and…

A: Given, in the question :Labour hours = 160Number of workers = XOutput= 1500Productivity = 2.344With…

Q: currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one year. ne-year…

A: Arbitrage is risk free opportunity available in market due to incorrect pricing in two markets.

Q: Treasury bills are paying a 10% rate of return. A risk-averse investor with a risk aversion of A = 3…

A: Given:Risk free rate = 10%Risk aversion = 3Standard deviation = 27%

Q: Bond prices and maturity dates. Les Company is about to issue a bond with annual coupon payments, an…

A: Price of bond is the present value of coupon payment and present value of the par value of the bond.

Q: Today is 1 July, 2022, Alex plans to purchase a corporate bond with a coupon rate of j₂ = 2.34% p.a.…

A: Present valueGiven a specific rate of return or discount rate, Present value refers to the method of…

Q: A coupon bond of 7.9 percent with 15 years left to maturity is priced to offer a 6.45 percent yield…

A: Total return of a bond:The total return of a bond refers to the overall gain or loss an investor…

Q: The stated interest rate on your account is 8% interest, compounded monthly if you deposit $50 each…

A: The concept of time value of money will be used here. As per the concept of time value of money the…

Q: Medavoy Company is considering a new project that complements its existing business. The machine…

A: NPV means Net Present value .It is a capital budgeting technique used for making investment…

Q: Use the data in the table Date 12/31/2018 12/31/2019 12/31/2020 12/31/2021 O a. 28.7% O b.7.5%…

A: Geometric average is based on the compounding effect and used in calculation of rate of return in…

Q: The TT Racing and Performance Motor Corporation wish to evaluate two alternative machines for NASCAR…

A: Equivalent Annual Cost is also known as EAC. It is a capital budgeting technique which helps in…

Q: Which of the following bank accounts has the highest effective annual return? An account that pays…

A: When you take a loan then an interest rate is stated on the loan agreement. The stated rate is…

Q: Calculate the present value of the following future cash flows, rounding all calculations to the…

A: Present Value (PV) is a financial concept that calculates the current worth of a future sum of…

Concept explainers

Cash Flow Statement Analysis

A company's cash flow is the movement of its cash inflows and cash outflows. A cash flow statement is prepared to determine changes in an organization's cash position. A cash flow statement shows how much money was generated and spent on the business during the fiscal year. The cash flow analysis is a method of analyzing an organization's investing, financing, and operating activities. A cash flow statement reveals an organization's liquidity and solvency, as well as its ability to change cash flows in the future. It eliminates the other effects of accounting methods by improving the comparability of different organizations' operational performance.

Question

A 4-year project has an annual operating cash flow of $56,500. At the beginning of the project, $4,750 in net working capital was required, which will be
recovered at the end of the project. The firm also spent $23,400 on equipment to start the project. This equipment will have a book value of $5,060 at
the end of the project, but can be sold for $5,970. The tax rate is 35 percent. What is the Year 4 cash flow?
Multiple Choice
O
$67,539
$21,753
$57,402
$66,902
$65,131

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction:

VIEW

Step 2: Computation of year 4 cash flow:

VIEW

Solution

VIEW

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Postman Company is considering two independent projects. One project involves a new product line, and the other involves the acquisition of forklifts for the Materials Handling Department. The projected annual operating revenues and expenses are as follows: Required: Compute the after-tax cash flows of each project. The tax rate is 40 percent and includes federal and state assessments.
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
A project requires an initial investment of $150,000, to be depreciated straight-line over 3 years to an expected salvage value of $0. In addition, working capital will increase during the life of the project and amount to 20% of next year’s revenues, with the investment in working capital to be made at the beginning of each year. The project will generate $150,000 additional annual revenues and $85,000 additional annual expenses. The tax rate is 25%. Cost of capital amount to 7,5%. Please calculate the Net Present Value of the project and show your calculations. Would you recommend the investment? Please explain your advice.
St. John's & Sons Sanitation Services is evaluating a project that will increase annual sales by $145,000 and annual cash costs by $94,000. The project will initially require $110,000 in fixed assets that will be depreciated straight-line to a zero book value over the 4-year life of the project. The applicable tax rate is 32 percent. What is the operating cash flow for this project? a. $11,220b. $29,920c. $43,480d. $46,620
In the fourth and final year of a project, XYZ expects operating cash flow after taxes of P440,000. The project required an P60,000 investment in working capital at the beginning. Of that amount, P40,000 will be recovered in year 4 and P20,000 will be in year 5. Machinery associated with the project will be sold for exactly its undepreciated value of P15,000. Tax rate is 40%. Total free cash flow for the fourth year is
Pulaski Starlight Inc. is evaluating a project. The project is expected to generated new sales of $1,718,798 and incur costs of $606,990 annually. The project will be depreciated using the MACRS approach. The equipment needed for the project will cost $4,495,137 and is considered to be a five year MACRS class. The company's tax rate is 28%. Given this information, what would be the project's third year operating cash flow? Answer in dollars and cents.
A project with a life of 6 years is expected to provide annual sales of $380,000 and costs of $269,000. The project will require an investment in equipment of $670,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/−15 percent. The tax rate is 21 percent. What is the annual operating cash flow for the best-case scenario
a project will increase sales by $92,800 and cash expenses by $53,200. The project will cost $89,000 and be depreciated using straight-line depreciation to a book value of zero over the 4-year life of the project. The tax rate is 35 percent. what is the operating cash flow (OCF) of the project using the tax shield approach? A) $35,170.50 B)$28,650.00 C)$42,350.50 D)$37,672.50 E)$33,527.50
A 5-yr project has an initial requirement of $100,415 for new equipment and $8,944 for net working capital. The fixed assets will be depreciated to a zero book value over 5 years and have an estimated salvage value of $23,294. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $69,509. The cost of capital is 8% and the tax rate is 29%. What is the net present value of the project?
A corporation expects to receive $32,000 each year for 15 years if a particular project is undertaken. There will be an initial investment of $150,000. The expenses associated with the project are expected to be $7500 per year. Assume straight-line depreciation, a 15-year useful life, and no salvage value. Use a combined state and federal 28% marginal tax rate, and determine the project’s after-tax rate of return.
Shelly's Boutique is evaluating a project which will increase annual sales by $70,000 and annual costs by $40,000. The project will initially require $100,000 in fixed assets which will be depreciated straight-line to a zero book value over the 5-year life of the project. The applicable tax rate is 34 percent. What is the operating cash flow for this project?
A company is evaluating a new 4-year project. The equipment necessary for the project will cost $2,950,000 and can be sold for $660,000 at the end of the project. The asset the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent and 11.52 percent, respectively. The company's tax rate is 35 percent. What is the aftertax salvage value of the equipment?