Compute the projects annual net cash flows

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The Taylor Mountain Uranium Company currently has annual cash revenues of $1.2 million and annual cash expenses of $700,000. Depreciation amounts to $200,000 per year. These figures are expected to remain constant for the foreseeable future (at least 15 years). The firm’s marginal tax rate is 40 percent. A new high-speed processing unit costing $1.2million is being considered as a potential investment designed to increase the firm’s output capacity. This new piece of equipment will have an estimated usable life of 10 years and a $0 estimated salvage value. If the processing unit is bought, Taylor’s annual revenues are expected to increase to $1.6 million and annual expenses (exclusive of depreciation) will increase to $900,000. Annual depreciation will increase to $320,000. Assume that no increase in net working capital will be required as a result of this project. Compute the project’s annual net cash flows for the next 10 years; assuming that the new processing unit is purchased. Also compute the net investment (NINV) for this project.

Reference no: EM13829772

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