4) Your company is considering a project that will generate sales revenue of $90 million in Year 1. Revenue is expected to be flat for subsequent years. The project requires working capital equal to 16% of sales revenue, and has total operating costs excluding depreciation equal to 50% of sales. The equipment has a 3 year MACRS life and can be purchased and installed for $100 million. The project will end in three years. At that time, the equipment can be sold for $4.2 million. Your companys tax rate is 25%.

a) Find the initial cash flow (Yr. 0).

b) Find the operating cash flows (Yrs. 1-3).

MACRS Depreciation Tables

Ownership Year	3-Year	5-Year	7-Year	10-Year
1	33.33%	20.00%	14.29%	10.00%
2	44.44	32.00	24.49	18.00
3	14.82	19.20	17.49	14.40
4	7.41	11.52	12.49	11.52
5		11.52	8.93	9.22
6		5.76	8.92	7.37
7			8.93	6.55
8			4.46	6.55
9				6.55
10				6.55
11				3.29
	100.0%	100.0%	100.0%	100.0%

5) Using the information from Problem 4:

a) Find the after-tax cash flow from the sale of the equipment.

b) Find the total flow that occurs in Yr. 3.