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You are evaluating the proposed acquisition of a new machine costing $54,000, and it falls into the MACRS 3-year class. Purchase of the machine would require an increase of not operating working

You are evaluating the proposed acquisition of a new machine costing $54,000, and it falls into the MACRS 3-year class. Purchase of the machine would require an increase of not operating working

Essentials Of Investments
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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You are evaluating the proposed acquisition of a new machine costing $54,000, and it falls into the MACRS 3-year class. Purchase of the machine would require an increase of net operating working capital of $4,000, which will be recovered when the machine is sold. The machine would increase the firm's revenues by $20,000 per year and its operating costs by $10,000 per year. The machine is expected to be used only for 3 years and then be sold for $25,000. The firm's marginal tax rate is 27 percent, and the project's cost of capital is 14 percent. What is the net cash flow at t=0, i.e., the initial cash flow?
Transcribed Image Text:You are evaluating the proposed acquisition of a new machine costing $54,000, and it falls into the MACRS 3-year class. Purchase of the machine would require an increase of net operating working capital of $4,000, which will be recovered when the machine is sold. The machine would increase the firm's revenues by $20,000 per year and its operating costs by $10,000 per year. The machine is expected to be used only for 3 years and then be sold for $25,000. The firm's marginal tax rate is 27 percent, and the project's cost of capital is 14 percent. What is the net cash flow at t=0, i.e., the initial cash flow?
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