Question

EVO, Inc. is evaluating a project that will have a life of four years. The operating cash flow each year is expected to be $51,500. There is a need to invest in net working capital at the start of the project in the amount of $4,250. EVO, Inc. will recover this investment in net working capital at the end of the project. EVO also needed to spend $22,400 on equipment in order to get the project started. The book value for this equipment when the project is finished, is estimated to be $4,660. This equipment will be sold at the end of the project for an estimated sales price of $5,670. EVO has a tax rate relevant to this analysis of 34 percent. Calculate the amount of cash flow in year 4 of this project

Answer 1

Answer:

$61,763.40

Explanation:

The computation of the amount of cash flow in year 4 is shown below:

Terminal Cash flow in year 4 is

= operating cash flow + net working capital invested + sale price of equipment - tax on profit from sale

= operating cash flow + net working capital invested  + sale price of equipment - tax rate × (Sale price - book value)

= $51,500 + $4,250 + $5,670 - 34% × ($5,670 - $4,660)

= $61,763.40