Answer:
$73,680
Explanation:
The cash inflows from the project in year 4 consists of the following:
1) operating cash flow
2) recovery of net working capital
3) salvage value of the equipment after tax
The operating cash flow is $52,620. The recovery of the net working capital is $5,160. The book value of the equipment at the end of year 4 is $17,014, and the market value is $15,900. Since the market value is lower than the book value, there is no capital gain and hence no tax. Therefore, the cash flow for the 4 year period after the equipment has been sold for $15,900 is shown below
The total cash flow in year 4 = $52,620 + $5,160 + $15,900 = $73,680.
If a project has an annual operating cash flow of $52,620. Initially, this four-year project required $5,160 in net working capital. The cash flow for Year 4 of the project if the equipment can be sold for $15,900 and the tax rate is 35 percent is: $74,069.90.
Using this formula
Year 4 Cash flow=Annual operating cash flow+ Net working capital+ Equipment-[(Equipment Market value -Equipment Book value)× Tax rea]
Let plug in the formula
Year 4 Cash flow= $52,620 + $5,160 + $15,900- [($15,900 -$17,014) ×.35]
Year 4 Cash flow= $52,620 + $5,160 + $15,900- (-$1,114×.35)
Year 4 Cash flow= $52,620 + $5,160 + $15,900- (-$389.9)
Year 4 Cash flow= $74,069.90
Inconclusion if a project has an annual operating cash flow of $52,620. Initially, this four-year project required $5,160 in net working capital. The cash flow for Year 4 of the project if the equipment can be sold for $15,900 and the tax rate is 35 percent is: $74,069.90.
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