Price, Inc., is considering an investment of $370,000 in an asset with an economic life of 5 years.
The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $250,000 and $75,000, respectively.
Both revenues and expenses will grow thereafter at the annual inflation rate of 3 percent. Price will use the straight-line method to depreciate its asset to zero over five years.
The salvage value of the asset is estimated to be $50,000 in nominal terms at that time. The one-time net working capital investment of $12,500 is required immediately and will be recovered at the end of the project.
All corporate cash flows are subject to a 34 percent tax rate.
What is the project’s total nominal cash flow from assets for each year?
Year 0:
Year 1:
Year 2:
year 3:
Year 4:
Year 5: