Generates operating cashflows

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Firm considers project which requires an immediate investment of $100, and generates operating cashflows (OCF) in the amount of $40 at the end of each of the next four years. At the end of the fourth year the firm will also generate an after tax cashflow from the sale of equipment and payment of any associated tax on the gain or loss on the sale. Assume the WACC =30%. How much must the after tax cashflow from the sale of equipment (at time 4) be such that the firm earns an acceptable rate of return on the project? Assume that at time 4 the book value of the asset is $5, and assume a 20% tax rate on any gain/loss on the sale. For how much must the equipment be sold to generate this return?

Reference no: EM131054886

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