Using straight-line depreciation

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Middlefield Motors is evaluating project Z. The project would require an initial investment of 55,000 dollars that would be depreciated to 10,500 dollars over 7 years using straight-line depreciation. The project is expected to have operating cash flows of 18,500 dollars per year forever. Middlefield Motors expects the project to have an after-tax terminal value of 373,000 dollars in 4 years. The tax rate is 30 percent. What is (X+Y)/Z if X is the project’s relevant expected cash flow in year 4, Y is the project’s relevant expected cash flow in year 5, and Z is the project’s relevant expected cash flow in year 3? Round your answer to 2 decimal places (for example, 2.89, 0.70, or 1.00).

Reference no: EM131524884


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