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Question
Kelly Corporation is considering an investment proposal that requires an initial investment of $150,000 in equipment. Fully depreciated existing equipment may be disposed of for $40,000 pre-tax. The proposed project will have a five-year life, and is expected to produce additional revenue of $65,000 per year. Expenses other than depreciation will be $15,000 per year. The new equipment will be depreciated to zero over the five-year useful life, but it is expected to actually be sold for $20,000. Kelly has a 35% tax rate.a. What is the net initial outlay for the proposed project?
b. What is the operating cash flow for years 1-4?
c. What is the total cash flow at the end of year five (operating cash flow for year 5 plus terminal cash flow)?
Answer
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