Your sister’s company currently manufactures a line of inexpensive cell phone cases. She and her executive team have decided to produce a more upscale line of cases constructed of carbon fiber. This will require purchasing new equipment. You have the following information on this investment project, what are the after-tax cash flows that it is expected to generate? (my answers are in thousands)
Cost of carbon fiber molding machinery: $80,000
Expected life of machinery: 5 years
Expected Salvage Value of machinery after 5 years: $20,000
Depreciation method: straight line
Expected sales of new phone cases: $130,000 per year
Cost of raw material: $70,000 per year
Cost of additional labor: $30,000 per year
Additional Net Working Capital required at the start of the project: $20,000
Tax rate: 35%.