Spacely Sprockets is considering increasing its production of sprockets at its Orbit City plant. You have been provided the following pieces of information on this ten year project.

• The expansion will require the purchase of machinery costing $50,000,000.
• The firm has spent $750,000 to train workers to use the new machinery. If the project is accepted, the firm expects to spend an additional $350,000 in training costs payable today (t=0).
• The sales from this project will be $20,000,000 per year. The operating expenses (excluding depreciation) equal $11,000,000.
• The company uses straight-line depreciation. The project has an economic life of 10 years and the machinery has a salvage value of $8,000,000.
• Because of the project, the company will need additional net working capital of $300,000, which can be liquidated at the end of ten years.
• Spacely’s marginal tax rate is 40%.
• Spacely’s cost of capital (WACC) is 10%.

1. The project’s cash flow in year 9 is $ ________.
2. The project’s cash flow in year 10 is $ ________.

Answer rating: 100% (QA)

To calculate the cash flows for year 9 and year 10 we need to consider the following components 1 Re... View the full answer