Gaedelt Company is considering a capital expenditure proposal that will required an initial cash outlay of $250,000.

Question:

Gaedelt Company is considering a capital expenditure proposal that will required an initial cash outlay of $250,000. The project life is expected to be 10 years, after which the equipment will have an expected of $10,000 (not considering the effect of inflation). In addition, estimated annual net cash inflows from operations during the life of the project are as follows:
YearEstimated Annual Cash Inflow
1 ......................................................$20,000
2 ...................................................... 30,000
3 ...................................................... 40,000
4 ...................................................... 60,000
5 ...................................................... 60,000
6 ...................................................... 60,000
7 ...................................................... 60,000
8 ...................................................... 60,000
9 ...................................................... 40,000
10 ...................................................... 20,000
Required:
Compute the inflation-adjusted net cash inflows for each year and the excess of cash inflows over cash outflows assuming a constant 9% rate of inflation during the 10-year period. (Round your price level index to three decimal places.) Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...