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Wize University Introduction to Finance Textbook > Cash Flow Estimation

Ending Cash Flow

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The Ending Cash Flow

The total cash flow that is expected to be made in the final year of the project. This does not include the projected expected cash flow for that year. It does include the salvage value and the recovered net working capital at the end of the project's life.

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Example: Ending Cash Flow (ECFt)

Wize Corporation is planning the acquisition of a new building in Austin, Texas. The cost of the building is $1,000,000. The closing fees are expected to be $10,000 and the building will require some repairs before it can be used, the cost of these repairs is estimated at $150,000. Once the building begins being used, additional inventory of $20,000 will be acquired. The building will be used for 5 years, after which the company plans on selling it for $2,200,000.

What is the ending cash flow and present value of ending cash flow if the cost of capital is 10%?

Practice: Ending Cash Flow (ECFt)

ABC Inc. is considering a new 5-year project.
  • The project requires the purchase of a new machine costing $600,000, delivery of the machine is expected to cost $50,000, and the opportunity cost of the project is $30,000.
  • The research cost associated with the project is $15,000.
  • The machine has a useful life of 5 years and a $75,000 salvage value. Assets are depreciated using the straight-line method.
  • Management believes that sales will increase by $300,000 and related expenses are expected to be $80,000 per year.
  • Inventory will increase immediately by $15,000 and no additional working capital is required, inventory will no longer be needed at the end of the project.
  • The cost of capital is 12% and the marginal tax rate is 30%.
Compute the ending cash flow and present value of ending cash flow, round your final answer to the nearest whole dollar.

The ending cash flow is$
The present value of the ending cash flow is$
Extra Practice
Queue de Castor Foods is considering the purchase of a new capital asset for $35,000. The asset has an economic life of three years, a CCA rate of 20 percent, and expected salvage value of $5,000. The project also requires an investment in net working capital of $4,500. Assume the asset class remains open after the asset is sold. The firm’s cost of capital is 14 percent and marginal tax rate is 40 percent. What is the present value of the terminal after-tax cash flow?
Assume straight line depreciation and ignore any recapture or terminal loss.
Amazing Lace has an opportunity to invest in a ten-year project that requires an initial investment of $2 million in a capital asset with a CCA rate of 20 percent. The initial net working capital requirement is $200,000, which will remain unchanged throughout the life of the project. The capital asset is expected to sell for $75,000 when the project terminates. Assume the asset class is closed upon termination of the project. The firm’s cost of capital is 10.5 percent and marginal tax rate is 40 percent. What is the ending after-tax cash flow? Assume straight-line depreciation and ignore recapture and terminal losses.