Calculating 'cash flows at the end'
Today (Year 0), Kangaroo Enterprises is evaluating whether topurchase a new jetboat to operate scenic thrill rides around LordHowe Island. The company currently has two other boats offering asnorkelling tour and a glass bottom boat tour. The jetboat costs$1,800,000. The jetboat project is expected to last ten years. TheAustralian Tax Office states the jetboat should be depreciated tozero over a 15-year life.
In Year 0, the new jetboat tour will result in an increase ininventory for Kangaroo Enterprises from $17,000 to $24,000. Thecompany anticipates that accounts payable immediately required forthe jetboat tour will increase by $11,000.
The company has already agreed to sell the jetboat in ten years’time to an unrelated firm for $250,000.
The company is expecting the jetboat rides will be very popularand are anticipating paying a one-off special dividend toshareholders of $150,000 at the end of the project.
Assume the company tax rate is 30%.
What are the 'cash flows at the end'?
