You are evaluating the proposed acquisition of a new computer. The computer\'s p

Question

You are evaluating the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net rating working capital of $ 5,000. The computer would increase the firm's 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 3 years and then be sold for $ 24,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent. What is the total value of the terminal year non-operating cash flows at the end of Year 37 Round it to a whole dollar, and do not include the $ sign. Year MACRS Percent 1 0.33 2 0.45 3 0.15 4 0.07

Explanation / Answer

Non operating cash flow at year 3 = After Tax salvage Value + Working Capital Recovery = 24000 * ( 1- 40%) + 0 = 14400

Please discuss in case of doubt

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