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Determining relevant cash flows for a new boat Jan and Deana have been dreaming about owning a boat for some time and have decided that estimating its cash flows will help them in their decision process. They expect to have a disposable annual income of $24,000. Their cash flow estimates for the boat purchase are as follows:
Negotiated price of the new boat
$70,000
Sales tax rate (applicable to purchase price)
6.5%
Boat trade-in
0
Estimated value of new boat in 4 years
$40,000
Estimated monthly repair and maintenance
$800
Estimated monthly docking fee
$500
Using these cash flow estimates, calculate the following:
a. The initial investment
b. Operating cash flow
c. Terminal cash flow
d. Summary of annual cash flow
e. Based on their disposable annual income, what advice would you give Jan and Deana regarding the proposed boat purchase?