Answered: project’s total nominal cash flow from…

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 2CE

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Question

Shado, Incorporated, is considering an investment of $442,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $281,300 and $88,400, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 4 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $62,000 in nominal terms at that time. The one-time net working capital investment of $18,500 is required immediately and will be recovered at the end of the project. The corporate tax rate is 22 percent. What is the project’s total nominal cash flow from assets for each year? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)

Year 0$-460,500selected answer correctYear 1$167,182selected answer incorrectYear 2$173,200selected answer incorrectYear 3$179,460selected answer incorrectYear 4$185,969selected answer incorrectYear 5$273,239selected answer incorrect

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