Etonic Inc. is considering an investment of $500,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $400,000 and $100,000, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 3 percent. Etonie will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $60,000 in nominal terms at that time. The one-time net working capital investment of $50,000 is required immediately and will be recovered at the end of the project. The nominal discount rate for all cash flows is 12 percent. All corporate cash flows 5 are subject to a 28 percent tax rate. What is the project's total nominal cash flow from assets in each year?

Answer rating: 100% (QA)

To calculate the projects total nominal cash flow from assets in each year we need to consider the cash revenues cash expenses depreciation taxes and ... View the full answer