Q 5: DSS Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is Tk. 101000. The cost of shipping and installation is an additional Tk.10,000. The asset will be depreciated under straight line depreciation method. Sales are expected to be Tk. 200,000 in year 1 and expected to grow at 10% per year upto year 4. Operating expenses will be 55% of sales. The project will require an increase in net working capital of Tk. 10,000. At the end of four years, DSS plans on ending the project and selling the manufacturing equipment for Tk. 25,000. The marginal tax rate is 40%.
a) What is the initial investment outlay associated with the machine?
b) What are the operating cash flows in year 1, 2, 3 and 4?
c) What is the terminal cash flow in year 4?
d) Estimate (summarize) the relevant (total after-tax) cash flows for the project?