Calculate the annual after-tax operating cash flow for Years 1 -4

timer Asked: Apr 11th, 2017

Question description

FITCO Inc. is the manufacturer of exercise machines and is considering producing a new line of equipment in an effort to increase its market share. The new production line will cost $1,550,000 for manufacturing the parts and an additional $130,000 is needed for installation. The equipment falls into the MACRS 3-yr class, and would be sold after four years for $400,000.

The equipment line will generate additional annual revenues

of $865,000, and will have additional annual operating expenses of

$500,000. An inventory investment of $90,000 is required during the

life of the project. FITCO is in the 35 percent tax bracket, and its

existing cost of capital is 6 percent.

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