You are evaluating the proposed acquisition of a new machine costing $63,000, and it falls into the MACRS 3-year class. Purchase of the machine would require an increase of net operating working capital of $5,000, which will be recovered when the machine is sold. The machine would increase the firm's revenues by $27,000 per year and its operating costs by $11,000 per year. The machine is expected to be used only for 3 years and then be sold for $22,000. The firm's marginal tax rate is 24 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?
You are evaluating the proposed acquisition of a new machine costing $63,000, and it falls into the MACRS 3-year class. Purchase of the machine would require an increase of net operating working capital of $5,000, which will be recovered when the machine is sold. The machine would increase the firm's revenues by $27,000 per year and its operating costs by $11,000 per year. The machine is expected to be used only for 3 years and then be sold for $22,000. The firm's marginal tax rate is 24 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?
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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Question
You are evaluating the proposed acquisition of a new machine costing $63,000, and it falls into the MACRS 3-year class. Purchase of the machine would require an increase of net operating working capital of $5,000, which will be recovered when the machine is sold. The machine would increase the firm's revenues by $27,000 per year and its operating costs by $11,000 per year. The machine is expected to be used only for 3 years and then be sold for $22,000. The firm's marginal tax rate is 24 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?
Question 9 options:
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$53,000
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$55,000
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$58,000
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$61,000
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$63,000
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$68,000
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