# project's cash flows

You are asked to analyse the following project:

Initial investment:

Equipment: $3,500,000

Initial net Working capital 10% of first year sales

Operating results

Year 1 Year 2 Year 3 Year 4 Year 5

$4,000,000 $5,000,000 $5,000,000 $5,500,000 $5,000,000

Variable costs: 60% of sales

Fixed costs: $500,000

Annual depreciation charge for equipment: $400,000

Investment in net working capital: 10% of next year increase in sales.

Taxes: 30%

Cost of capital: 10%

The project ends at the end of the 5th year. The net working capital is

recovered at the end of the project.

The net salvage value of assets at the end of the project is $1,500,000.

Required:

a. Estimate the project's cash flows

b. Using the payback period, the discounted payback period, the net present value and the profitability ratio, assess the project and present your conclusion.

© BrainMass Inc. brainmass.com October 1, 2020, 10:51 pm ad1c9bdddfhttps://brainmass.com/economics/finance/project-s-cash-flows-245819

#### Solution Summary

The project's cash flows are depicted.