Problem:
Amazing Tires is considering opening a new facility to meet demand for the next 5 years. It will require initial capital expenditures of $5 million at time zero to open the facility. After 5 years the facility will be sold, and the after tax salvage value is expected to be $0.9 million. The initial investment in NOWC will be $690,000. Amazing expects to recover its NOWC investments at the end of the project. Operating cash flows of $1 million per year are expected for each year of the 5 year project.
Required:
Question: What is the Total Cash flow for the last year of the project (Year 5)?
A. $1,787,100
B. $2,590,000
C. $3,159,800
D. $2,046,100
Note: Provide support for your underlying principle.