Tom Morrison Inc. is evaluating a new golf ball called the 'Feathery'. The production line would be set up in an unused section of Morrison's main plant. The machinery is estimated at $480,000. Further, Morrison's inventories would have to be increased by $50,000 to handle the new line. The machinery will be used for two years and have an expected salvage value of $200,000 at the end of that time. Morrison's tax rate is 30%. Operating earnings (EBITDA) are expected to be $330,000 per year for each of the two years. Assume that the purchase of the machine and increase in inventory occur at the beginning of the first year of operations. Assume that operating cash flows occur at the end of each of the two years of operations. What are the terminal year cash flows?

Tom Morrison Inc. is evaluating a new golf ball called the 'Feathery'. The production line would be set up in an unused section of Morrison's main plant. The machinery is estimated at $480,000. Further, Morrison's inventories would have to be increased by $50,000 to handle the new line. The machinery will be used for two years and have an expected salvage value of $200,000 at the end of that time. Morrison's tax rate is 30%. Operating earnings (EBITDA) are expected to be $330,000 per year for each of the two years. Assume that the purchase of the machine and increase in inventory occur at the beginning of the first year of operations. Assume that operating cash flows occur at the end of each of the two years of operations. What are the terminal year cash flows?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

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