Question
A Drilling machine costs $60,000 and additional $4,000 shipping and handling. It will be depreciated on a straight-line basis over a 4-year period. The purchase
A Drilling machine costs $60,000 and additional $4,000 shipping and handling. It will be depreciated on a straight-line basis over a 4-year period. The purchase would require an increase in net operating working capital of $5,000 at t=0. The machine would increase the firms revenues by $30,000 per year but would also increase operating costs by $8,000 per year. It will be sold for $20,000 at the end of year 3. The firms tax rate is 35%. Questions:
(1) What is the net investment required at t = 0?
(2) What is the operating cash flow in Year 2?
(3) What is the terminal year non-operating cash flows at the end of Year 3?
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