Your company is considering a new 3-year project that requires an initial investment in equipment of $3
Question:
Your company is considering a new 3-year project that requires an initial investment in equipment of $3 million. Prior to this, you had engaged a consultant to study the feasibility of the new project and after an extensive market survey, the consultant confirmed your belief that the project would be viable. Your company is charged $100,000 for the feasibility study. The equipment will be depreciated straight line to zero over the 3 years of its useful life. In addition, you will need to invest $180,000 in net working capital at the initiation of the project. You estimate that the project will produce sales of $3.5 million every year for 3 years, with costs of $1.5 million. The tax rate is 20%.
Calculate the operating cash flow for this project.