Etonic Inc. is considering an investment of $385,000

Etonic Inc. is considering an investment of $385,000

Q6.Etonic Inc. is considering an investment of $385,000 in an asset with an economic life of 5 years. The
firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be
$265,000 and $90,000, respectively. Both revenues and expenses will grow thereafter at the annual
inflation rate of 3 percent. Etonic will use the straight-line method to depreciate its asset to zero over five
years. The salvage value of the asset is estimated to be $65,000 in nominal terms at that time. The onetime net working capital investment of $20,000 is required immediately and will be recovered at the end
of the project. All corporate cash flows are subject to a 34 percent tax rate.
What is the project’s total nominal cash flow from assets for each year? (Do not round intermediate
calculations. Negative amounts should be indicated by a minus sign.)
Cash flow
Year 0
Year 1

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