Calculating ‘cash flows at the end’
Today (Year O), Wheat Corporation (WHT) is evaluating whether to purchase a new combine harvester for $280,000 to harvest corn in their farm.
Shareholders are expecting the harvester will improve the financial performance of WHT, as a result, shareholders are anticipating receiving a special dividend of $50,000 at the end of the project.
In Year 0, the new combine harvester will result in an increase in accounts payable for WHT from $12,000 to $15,000. The company anticipates that spare parts inventory immediately required for the new harvester will increase by $15,000.
In Year O, WHT have agreed to sell the harvester to a competitor in eight years’ time for $120,000. The tax office states the harvester has an effective life of 12 years. Assume the company tax rate is 30%.
What are the ‘cash flows at the end’?
[Describe and list separately each cash flow and the corresponding amount on a new line, as