XYZ Inc. is expanding its business. To do so it will need to purchase new equipment for $40,000. Further, this expansion will require $8,000 inventory of which $5,000 will be financed through an increase in accounts payable. The expansion is expected to generate annual revenue of $100,000 with operating costs of $60,000. Depreciation is straightline with the equipment cost depreciated in four equal installments over the 4 years of the project. The project will last for 4 years and the equipment will be depreciated straightline to a $0 salvage value. Compute the initial (year 0) free cash flow.
XYZ Inc. is expanding its business. To do so it will need to purchase new equipment for $40,000. Further, this expansion will require $8,000 inventory of which $5,000 will be financed through an increase in accounts payable. The expansion is expected to generate annual revenue of $100,000 with operating costs of $60,000. Depreciation is straightline with the equipment cost depreciated in four equal installments over the 4 years of the project. The project will last for 4 years and the equipment will be depreciated straightline to a $0 salvage value. Compute the initial (year 0) free cash flow.
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 3P
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XYZ Inc. is expanding its business. To do so it will need to purchase new equipment for $40,000. Further, this expansion will require $8,000 inventory of which $5,000 will be financed through an increase in accounts payable. The expansion is expected to generate annual revenue of $100,000 with operating costs of $60,000. Depreciation is straightline with the equipment cost
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