Martingale Corporation is considering a 3-year project. All the fixed assets necessary for this project are classified as 3-year properties for MACRS. The corporate tax rate is 21%.

MACRS Depreciation Rates

Class	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
3-year	0.3333	0.4445	0.1481	0.0741
5-year	0.2000	0.3200	0.1920	0.1152	0.1152	0.0576

Initial Investment	$1,000,000
Annual Sales	$800,000
Annual Operating Costs	$300,000
Initial Increase in NWC	$250,000
Resale value of fixed assets	$150,000
Tax rate	21%
Discount rate	10%

	Year 0	Year 1	Year 2	Year 3
Initial Investment	1,000,000
Revenue		800,000	800,000	800,000
Operating Costs		300,000	300,000	300,000
Depreciation		?	?	?
EBT		167,700	55,500	351,900
Tax		35,007	11,655	73,899
Net Income		131,963	43,845	278,001
Operating cash flow		464,993	488,345	?
Net Capital Spending	(1,000,000)			?
in NWC	(250,000)			250,000
Incremental cash flow	(1,250,000)	464,993	488,345	?

What is the project's operating cash flow in Year 3?

 What is the net salvage cash flow from the sale of the fixed assets after Year 3?

 What is the net present value of this project?

 

Answer rating: 100% (QA)

To calculate the projects operating cash flow in Year 3 we first need to determine the depreciation ... View the full answer