Cowboys Copies, Inc., wants to upgrade its copy machines. Its last update was 2 years ago, when it spent $1,150 on equipment with an assumed life of 5 years and. The firm uses MACRS depreciation. The old equipment can be sold today for $800.

A new system can be installed today for $1,500. This will have a 3 year life and will be depreciated under MACRS 3 year schedule. At the end of 3 years, the new equipment will be worthless (therefore, market value of zero).

The company projects unit sales associated with the new equipment as follows:

YearSales (in Units)172280364Thereafter0

Investment in net working capital will be 20 percent of the sales for the following year.

Therefore, total net working capital for year 0 would be 20 percent of the sales in year 1 and for year 1, you will need total net working capital amounting to 20 percent of the sales for year 2 in dollar values (not in units).

The production costs are $15 per unit, and the units are priced at $40 each.

The firm is in the 40 percent marginal tax bracket and required rate of return is 12%.

MACRS Schedule

Year3 year5 year133.3320.00244.4532.00314.8119.2047.4111.52511.5265.76

Whatare the operating cash flows for Years 1 to 3?