# How to calculate initial cash flows?

## Solution

The solution is mentioned below −

Fixed capital = $2000 Working capital =$ 200
Salvage value = $1600 Book value =$ 1200
Tax rate = 28%

Initial cash flows = FC+WC-S + (S-B) * T

= 2000 + 200 – 1600 + (1600 – 1200) * 0.28

= 2000 + 200 – 1600 + 112

= 2312 – 1600

= = $712 Here FC = fixed capital, WC = working capital, S = Salvage value, B = Book value, T = Tax rate • A toy manufacturer company had following data New equipment cost =$ 700000 Salvage value = $475000 Additional expenses =$ 17500 Book value = $390000 Tax rate = 18% Calculate initial cash flow ## Solution The solution is explained below − Initial cash flows = FC+WC-S + (S-B) * T = 700000 + 17500 – 475000 + (475000 – 390000) * 0.18 = 700000 + 17500 – 475000 + 15300 = 732800 – 4750000 =$257800

Here FC = fixed capital, WC = working capital, S = Salvage value, B = Book value, T = Tax rate