Question

Relevant cash flow and timeline depiction For each of the following projects, determine the relevant cash flows, and depict the cash flows on a time line. a. A project that requires an initial investment of $116,000 and will generate annual operating cash inflows of $29,000 for the next 18 years. In each of the 18 years, maintenance of the project will require a $5,500 cash outflow. b. A new machine with an installed cost of $85,000. Sale of the old machine will yield $27,000 after taxes. Operating cash inflows generated by the replacement will exceed the operating cash inflows of the old machine by $22,000 in each year of a 6-year period. At the end of year 6, liquidation of the new machine will yield $15,000 after taxes, which is $8,000 greater than the after-tax proceeds expected from the old machine had it been retained and liquidated at the end of year 6. c. An asset that requires an initial investment of $2 million and will yield annual operating cash inflows of $290,000 for each of the next 12 years. Operating cash outlays will be $17,000 for each year except year 5, when an overhaul requiring an additional cash outlay of $496,000 will be required. The asset's liquidation value at the end of year 12 is expected to be zero. a. A project that requires an initial investment of $116,000 and will generate annual operating cash inflows of $29,000 for the next 18 years. In each of the 18 years, maintenance of the project will require a $5,500 cash outflow. (Select all the choices that apply.) A. At year O, the initial investment will be - $116,000. For each of the years 1 thru 18, the net cash flow will be $29,000. B. Year 0 1 2 - 16 17 18 Cash flow - $116,000 $23,500 $23,500 $23,500 $23,500 $23,500 $23,500 OC. At year 0, the initial investment will be - $116,000. For each of the years 1 thru 18, the net cash flow will be $29,000 - $5,500 = $23,500. D. This is a conventional cash flow pattern, where the cash inflows are of equal size, which is referred to as an annuity.

I cant move to other questions before answering this one first....

Answer 1

Part (a) as asked by you.

Ans- Option B As at year 0, initial cash outflow will be $ 116000 and from Year 1 through 18, the net cash flow will be $ 23500 (29000-5500). This option also depicts cash flows on a time line.

Note- Option B and C are almost same but option C does not depict it the cash flow on timeline. (Hope it will help you in next parts).

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