Question: BMI corporation is evaluating relevant cash flows for a new machine. The projects initial investment is $30,000.00. It is expected to last for three years and expected to generate an annual revenue of 16,000, annual cash expenses of $8,000. The investment will be depreciated using straight line method. The machine is expected to be sold at the end of three years for $5,000. For the purpose of net working capital needs, it is expected to budget 10% of revenue as cash balance. all of these balances would be needed at the beginning of each year and are estimated from the year-end annual estimates of revenues and cash expenses given above. The tax rate is 25% and the cost of capital is 9%.
What is the cash flow for at year 0,1,2,3?
If the cost of capital is 10%, is it a good investment?