What is the total operating cash flows

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Question - McCormick & Company is considering a project that requires an initial investment of $24millionto build a new plant and purchase equipment. The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The new plant will be built on some of the company's land, which has a current, after-tax market value of $4.3million.

The company will produce bulk units at a cost of $130 each and will sell them for $420 each. There are annual fixed costs of $500thousand. Unit sales are expected to be 150,000each year for the next six years, at which time the project will be abandoned. At that time, the plant and equipment is expected to be worth $8 million (before tax) and the land is expected to be worth $5.4million (after tax).
To supplement the production process, the company will need to purchase $1millionworth of inventory. That inventory will be depleted during the final year of the project. The company has $100million of debt outstanding with a yield to maturity of 8percent, and has $150million of equity outstanding with a beta of 0.9. The expected market return is 13percent, and the risk-free rate is 5percent.The company's marginal tax rate is 40percent.

Question - What is the total operating cash flows?

Reference no: EM132190837

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