Assignment Detail

Assignment ID: FG132912780

Problem – McCormick & Company is considering building a new factory in Largo, Maryland. McCormick & Company decided to offer $4,424,000 to obtain the land for this project. The new factory will require an initial investment of $350 million to build the new plant and purchase equipment.

You have been asked to refine your work to include the correct tax impact of depreciation, and the cash flow impact of working capital on the capital budget evaluation.

The investment will be depreciated as a modified accelerated cost recovery system (MACRS) seven-year class asset. The correct depreciation table is included at the right.

The company will need to finance some of the cash to fund $17 million in receivables and $14 million in Inventory starting at year zero. The company expects vendors to give free credit on purchases of $15 million (accounts Payable). Add the net cash outflow for working capital to the cash outflow for the plant, equipment and land in year zero. The $17 million for receivables and the $14 million for Inventory are cash outflows. The $15 million for payables is a cash inflow.

Assume that this net working capital is recovered as a net cash inflow in year 21.

The company now estimates that it can sell the land in year 21 for $40 million. The plant and equipment are fully depreciated and have no salvage value.

Required – Find Net Cash Flow of Year 0 and Year 21?