Question
Mars Inc. is considering the purchase of a new machine which will reduce manufacturing costs by $5,000 annually.The machine falls into the MACRS 3-yr class,
Mars Inc. is considering the purchase of a new machine which will reduce manufacturing costs by $5,000 annually.The machine falls into the MACRS 3-yr class, (33%, 45%, 15%, and 7%) and it would be sold at the end of its2-year operating life for $1,800. The machine would require an increase in networking capital by $2,000 when the machine is installed, but the required working capital will return to the original level when the machine is sold after2years. Mars's marginal tax rate is 40 percent, and it uses a 12 percent cost of capital to evaluate projects of this nature. If the machine costs $6,000 and the installation cost is $1,000, what is theoperating cash flow in year 1(OCF1)?
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