QUESTION 22

1. You have been asked to evaluate the proposed acquisition of a new machine. The machine's price is $60,000 and it would be depreciated straight-line line, down to zero, over five years. Purchase of the machine would require an increase in net working capital of $5,000. The machine would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $4,000 per year. The machine is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 36%, and the project's cost of capital is 14%. What are the initial (t=0) cash outflows?

   		$20,000
   		$25,000
   		$60,000
   		$65,000

1. Given the data in the previous question, what are the operating cash inflows at t=1?

   		$2,560
   		$7,680
   		$14,560
   		$16,380