Scenario 1

Star Company is considering production of a surface tablet with the following associated data:

•	Expected annual revenues, $3,000,000
•	A projected product life cycle of five years
•	Equipment costs $3,200,000 with a salvage value of $400,000 after five years
•	Expected increase in working capital, $400,000 (recoverable at the end of five years)
•	Annual cash operating expenses are estimated at $1,800,000.
•	The required rate of return is 12 percent.

Required:

1. Estimate the annual cash flows for the tablet project by completing the following table:

Year(s)	Item	Cash Flow
0	Equipment
	Working capital
	Total
1–4	Revenues
	Operating expenses
	Total
5	Revenues
	Operating expenses
	Salvage
	Recovery of working capital
	Total

Answer rating: 100% (QA)

Tax rate 0 Year1 Year2 Year3 Year4 Year5 Sale 3000000 3000000 3000000 3000000 3000000 Less Operating ... View the full answer