RELEVANT CASH FLOWS WORK in Excel.

RELEVANT CASH FLOWS WORK Part A

Income tax rate 30% Capital gains tax rate 15%

You are considering investing in a new asset which costs $75,000. It will cost $5,000 to install this asset. The old asset, which has a book value of $0, can be sold for $25,000. The purchase price of the old asset was $100,000. The new asset will allow you to decrease your inventory by $2,000. What is the initial investment in this asset?

If you purchase the new asset referred to in Problem 1, it will generate revenues of $60,000 per year for the next three years. Expenses will be $20,000 per year. The asset will be depreciated using the straight-line method. The operating cash flows for the old machine are $10,000 each year. What are the marginal operating cash flows for this investment?