Question 06: TMC Inc. is considering expanding into a new variation of furniture that will...
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Question 06: TMC Inc. is considering expanding into a new variation of furniture that will use wrought ron as the main raw material. The necessary information related to the project are as follows- The project will require TMC to purchase a new equipment worth $800,000 - Inventory will increase by $150,000 and accounts payable will increase by $100,000. All other working capital components will remain the same. - The project will last for 4 years. The company forecast the following sales: 250,000 units in year 1; 270,000 units in year 2; 225,000 units in year 3 and 200,000 units in year 4. Each unit sales for $20 The fixed cost of the project will be $900,000 per year, and the variable cost associated with producing each unit is $15 per unit. The company uses a straight-line depreciation. For tax purpose, the asset is depreciated to zero. - When the project is completed at the end of year 4, the company expects that it will be able to salvage the equipment for $40,000 and that it will fully recover the Net Working Capital. - The estimated tax rate is 35%. Calculate the estimated cash flow. [5 Marks)
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