| Course | GB550 Financial Management |
|---|---|
| Unit | Unit 8 |
| Paper type | Project cash flow analysis |
| Length | About 1,130 words, 7 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for GB550 Unit 8
How Thin Is $2.02 Million? A Unit 8 Project Cash Flow Analysis for 24 Tank Barges
[Student Name]
Purdue University Global
GB550: Financial Management
Unit 8 Project Cash Flow Analysis
[Instructor Name]
[Date]
The barge operator, the contract and every cost, rate and probability are composite and illustrative; the tax rules described are real and summarized, and the sources cited are real.
The Project
A petrochemical shipper has offered an eight-year contract to move product between Gulf Coast plants and terminals upriver. Serving it requires 24 new tank barges at $2.10 million each, $50.4 million in all. The contract pays a fixed $15.6 million a year for dedicated capacity, and the barges would be sold at the end of the contract if it is not renewed.
Cash Flow Assumptions
Investment: $50.4 million in barges at the start, plus $2.2 million of working capital for fuel inventory and receivables, recovered at the end.
Revenue: $15.6 million a year under the contract.
Cash operating costs: $7.3 million a year for crews, fuel, cleaning and maintenance, leaving $8.3 million before depreciation and tax.
Depreciation: the ten-year MACRS schedule with the half-year convention (Internal Revenue Service, 2025): 10.00, 18.00, 14.40, 11.52, 9.22, 7.37, 6.55 and 6.55 percent in years one to eight.
Tax rate: 24 percent, from the Unit 1 sheet.
Cash Flow Table
Operating cash flow each year is (8.3 − depreciation) × 0.76 + depreciation.
Year 0: −$52.6 million (barges and working capital).
Year 1: depreciation $5.04 million, which shields $1.21 million of tax; operating cash flow $7.52 million.
Year 2: depreciation $9.07 million, larger than operating income, so the loss shields other income; operating cash flow $8.49 million.
Year 3: $8.05 million. Year 4: $7.70 million. Year 5: $7.42 million. Year 6: $7.20 million. Year 7: $7.10 million.
Year 8: operating cash flow $7.10 million, plus after-tax salvage and recovered working capital.
Salvage. After eight years the barges have a tax book value of $8.26 million, since MACRS has written off 83.6 percent of their cost. They are assumed to sell for $27.0 million, a gain of $18.74 million. Because depreciation ran faster than the barges actually lost value, that gain is taxable at 24 percent, $4.50 million, so the sale nets $22.50 million. With $2.2 million of working capital returned, year eight totals $31.80 million.
The single largest cash inflow comes in year eight, when the barges are sold, so the salvage assumption matters almost as much as the contract.
Items That Are Easy to Miss
Three items in the table are often left out of student cash flow analyses, and each changes the answer. Working capital is a real investment: $2.2 million tied up in fuel and receivables for eight years costs the project about $1.1 million in present value at 9.02 percent, even though the money comes back. The depreciation shield in year two exceeds the barges' operating income, which is valuable only because the company has other taxable income to offset; a stand-alone company could not use it until later years. And the tax on the salvage gain, $4.50 million, would be missed by an analysis that discounted the $27.0 million sale price directly, overstating value by about $2.3 million. Brigham and Ehrhardt (2020) list working capital and terminal taxes among the most common omissions in project analysis, and including them is part of why the value here is so thin.
Discount Rate
The project carries more risk than the company's average business. Its revenue depends on a single customer, and its barges serve one specialized trade. The analysis adds a premium of 0.75 points to the Unit 6 rate, discounting at 9.02 percent. Brealey et al. (2023) describe a risk-adjusted rate as one accepted approach for a project riskier than the firm's average, with the alternative of keeping the firm's rate and modeling the risk directly in the cash flows. This analysis does both.
At 9.02 percent: net present value $2.02 million; internal rate of return 9.87 percent.
At the company's 8.27 percent: net present value $3.90 million.
Risk Exhibit 1: Salvage Value
Each $1 million change in the sale price changes the net present value at 9.02 percent by about $0.38 million. The project breaks even at a sale price of about $21.7 million, 20 percent below the base assumption. A buyer market for used tank barges that softened by more than that would erase the value.
Risk Exhibit 2: Scenarios
The second approach keeps the 8.27 percent rate and weights four scenarios.
Base case, probability 0.60: net present value $3.90 million.
Low water, probability 0.20: two low-water years, years three and six, cut volumes and revenue 15 percent in each, despite the contract's minimum; net present value $1.40 million.
No renewal, probability 0.15: the customer does not renew and the barges sell into a weaker market for $20.0 million; net present value $1.08 million.
Both, probability 0.05: net present value −$1.42 million.
Expected net present value: $2.71 million.
The probabilities are stated assumptions with their basis: low water has affected the upper river in about one year in four over the past two decades, and similar dedicated contracts in the company's history have been renewed about four times in five. Treating the two risks as independent gives the weights above.
Risk Exhibit 3: The Two Methods Compared
The risk-adjusted rate gives $2.02 million; the scenario approach gives an expected $2.71 million at the company's rate. The two are close, which suggests the 0.75-point premium is a reasonable summary of the project's extra risk. The scenario table also shows something the single rate hides: in one case in twenty, the project loses money, and in that case the company is left with barges it must sell into a weak market.
What Would Strengthen the Project
The scenario table points to the terms worth negotiating. A renewal option at the customer's discretion, with a minimum notice period, would reduce the chance of the no-renewal case. A higher volume minimum in the contract would protect revenue in low-water years. And a buy-back clause, under which the customer purchases the barges at a stated price if it does not renew, would put a floor under the salvage value, removing the project's largest single uncertainty. Each term has a cost in negotiation, but each targets a specific risk the exhibits identify.
Conclusion
The project is worth undertaking, but its value is thin and concentrated in the salvage sale. Koller et al. (2020) recommend that a project whose value depends heavily on a terminal assumption be approved with conditions that protect that assumption. Here, the company should seek a renewal option in the contract and avoid ordering barges until the contract is signed. Unit 9 considers how the purchase should be financed.
References
Brealey, R. A., Myers, S. C., & Allen, F. (2023). Principles of corporate finance (14th ed.). McGraw Hill.
Brigham, E. F., & Ehrhardt, M. C. (2020). Financial management: Theory and practice (16th ed.). Cengage.
Internal Revenue Service. (2025). How to depreciate property (Publication 946). https://www.irs.gov/publications/p946
Koller, T., Goedhart, M., & Wessels, D. (2020). Valuation: Measuring and managing the value of companies (7th ed.). Wiley.
The Purdue Global GB550 Unit 8 instructions
GB550 Unit 8 asks you to build a project's cash flows and evaluate its risk. State every assumption, including investment, working capital, revenue, operating costs, depreciation method and tax rate, with sources. Build a year-by-year cash flow table, including the tax treatment of any salvage value and the recovery of working capital. Choose a discount rate that reflects the project's risk and explain it. Calculate net present value and internal return. Then test the result in several ways, such as break-even analysis and weighted scenarios with stated probabilities. Note items that are easy to miss. Recommend whether to proceed and on what terms. Expect about six pages with a cash flow table and risk exhibits, citing sources in APA 7.
How this GB550 Unit 8 example is built
Assumptions cite the IRS depreciation publication for the MACRS schedule. The table runs from −$52.6 million to $31.80 million in year eight, and the highlighted sentence notes that the largest inflow is the sale. A section shows working capital, the year-two shield and the salvage tax changing the answer, with Brigham and Ehrhardt. The rate adds 0.75 points for single-customer risk, with Brealey and colleagues on the two methods. Exhibits give a break-even sale price near $21.7 million, four weighted scenarios with an expected $2.71 million and a comparison of methods. Contract terms and Koller and colleagues on terminal assumptions follow.
GB550 Unit 8 rubric: what earns full points
A strong GB550 project cash flow analysis is graded on whether each cash flow can be traced to a stated assumption and tax rule. Clear assumptions with sources earn points. A complete year-by-year table shows care. Taxing the gain on salvage correctly shows technical command. Including working capital and its recovery shows completeness. A risk-adjusted rate with reasons shows judgment. Testing value with break-even and weighted scenarios shows rigor. Stating the basis for each probability makes assumptions open to challenge. Comparing two risk methods shows depth. Recommending protective contract terms shows practical sense. Brealey and colleagues, Brigham and Ehrhardt, the IRS publication, and Koller and colleagues are cited.
GB550 Unit 8 help from the desk
Many GB550 Unit 8 analyses discount the sale price of assets directly, forgetting the tax on the gain above book value, which can overstate value by millions. Others skip the working capital the project needs, or never return it at the end. A frequent gap is risk: a single net present value hides how much depends on one assumption, such as salvage, and the paper should test it. Some writers assign scenario probabilities with no stated basis. State every assumption, build the table with depreciation and taxes, handle salvage and working capital correctly, choose and explain the rate, test break-even and scenarios, compare methods and recommend terms that protect the value. Visible, reasonable assumptions matter more than precise ones.
Get a GB550 Unit 8 example written to your instructions
Attach the Unit 8 case figures, including costs, revenue estimates, depreciation method and any working capital figures, plus the prompt and rubric. Cash flows get built year by year with relevance decisions explained, terminal items shown separately and the risk tests your section asks for. The opening custom sample costs nothing and normally returns in 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GB550 Unit 8 questions, answered
Why does the salvage value get taxed?
Because the barges would sell for more than their depreciated book value, and that gain is taxable. MACRS writes the assets down faster than they lose market value, so a sale after eight years recaptures some of the earlier deductions. The sample taxes the 18.74 million gain at 24 percent, which is why a 27.0 million sale nets 22.50 million.
Is adding a premium to the discount rate standard?
It is one accepted approach when a project is riskier than the firm's average, and many textbooks describe it. The alternative is to keep the firm's rate and model the risk directly in the cash flows through scenarios. The sample does both, showing value at 8.27 and 9.02 percent and weighting four scenarios, letting a grader compare the two methods directly.
Where do the scenario probabilities come from?
In the sample they are stated assumptions, each with a sentence on its basis: how often recent years brought low water, and how often similar contracts were renewed. Real cases sometimes supply probabilities; otherwise the paper must state and defend its own. Graders mainly look for assumptions that are visible and reasonable rather than precise, since nobody knows these figures exactly.
Where can I find a free GB550 Unit 8 sample paper?
This page carries a full GB550 Unit 8 project cash flow analysis for 24 tank barges, with a MACRS cash flow table, after-tax salvage, risk exhibits, scenarios and APA 7 references.
What sale price would make the project worthless?
About $21.7 million at the 9.02 percent rate, 20 percent below the assumed $27.0 million. Each $1 million change in the sale price moves the value by about $0.38 million.