What are the annual depreciation charges? What are the project’s annual cash flows?
As a financial analyst, you must evaluate a proposed project to produce printer cartridges. The
equipment would cost $55,000, plus $10,000 for installation. Annual sales would be 4,000 units at a
price of $50 per cartridge, and the project’s life would be 3 years. At time 0, current assets would
increase by $5,000 and payables by $3,000. At the end of 3 years, the equipment could be sold for
$10,000, while the
year class, so the applicable rates would be 33%, 45%, 15%, and 7%. Variable costs would be 70% of
sales revenues, fixed costs excluding depreciation would be $30,000 per year, the marginal tax rate is
40%, and the corporate cost of capital is 11%.
What are the annual depreciation charges?
What are the project’s annual cash flows?
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