The president of Real Time inc. has asked you to evaluate the proposed acquisition of a new computer. The computers price is $40,000, and it falls in the MACRS-3-year class. The applicable depreciation rates are 33%, 45%, 15%, and 7%. Purchase of the computer would acquire an increasein net operating working capital of $2,000. The computer would increase the firms before tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 4 years and then sold for $25,000. The firms marginal tax rate is 40%, and the projects cost of capital is 14%. What is the total value of the terminal year non-operating cash flows at the end of year 4?
The president of Real Time inc. has asked you to evaluate the proposed acquisition of a new computer. The computers price is $40,000, and it falls in the MACRS-3-year class. The applicable depreciation rates are 33%, 45%, 15%, and 7%. Purchase of the computer would acquire an increasein net operating working capital of $2,000. The computer would increase the firms before tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 4 years and then sold for $25,000. The firms marginal tax rate is 40%, and the projects cost of capital is 14%. What is the total value of the terminal year non-operating cash flows at the end of year 4?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The president of Real Time inc. has asked you to evaluate the proposed acquisition of a new computer. The computers price is $40,000, and it falls in the MACRS-3-year class. The applicable depreciation rates are 33%, 45%, 15%, and 7%. Purchase of the computer would acquire an increasein net operating working capital of $2,000. The computer would increase the firms before tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 4 years and then sold for $25,000. The firms marginal tax rate is 40%, and the projects cost of capital is 14%. What is the total value of the terminal year non-operating cash flows at the end of year 4?
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