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I have a friend who owns a home business of cloth diapers. Currently, she only sells...

I have a friend who owns a home business of cloth diapers. Currently, she only sells her products locally. She has mentioned about investing more in equipment and expand her business by selling it online also. The equipment needed for her business would cost around $5,000. She is thinking about selling each cloth diaper for $12. The variable cost is $4 per diaper. She expects to sell about 50 diapers a month and about 600 diapers a year. She estimates the life of the equipment to be 10 years. The depreciation for the equipment is $500 per year. The tax rate is 21%. What is the initial cash flow?

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Answer #1

Solution:

Initial cash flow is the amount paid or received at beginning of project.

Therefore

Initial cash flow = Amount paid for equipment purchased = ($5,000)

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