Jones Crusher Company is evaluating the proposed acquisition of a new machine. T

Question

Jones Crusher Company is evaluating the proposed acquisition of a new machine. The machine will cost $190,000, and it will cost another $33,000 to modify it for special use by the firm. Moreover, the utilization of the machine for the first time will require an increase in net working capital of $9,000. The machine falls into the MACRS 3-year class, and it will be sold after 3 years of use for $110,000. The machine will generate $100,000 revenues per year before-tax. The company's marginal tax rate is 40% and the annual cash expenses is 10% from the revenues. What is the initial cash flow for the project?

A) -$42,000

B) -$190,000 C) -$199,000 D) -$223,000 E) -$232,000

Explanation / Answer

Initial cash flow= -(machine cost+modification cost+Increase in net working capital)

=-($190000+$33000+$9000)

-$232000

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