(The following information applies to the next four problems.)

The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computers price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net working capital of $2,000. The computer would increase the firms before-tax revenues by $20,000 per year but would also increase the operating costs by $5,000 per year. The computer is expected to be used for 3 years and then sold for $25,000. The firms marginal tax rate is 40 percent, and the projects cost of capital is 14 percent. Applicable MACRS rates are 33%, 45%, 15%, 7%

1. What is the investment required at t = 0?

a. -$42,000.

b. -$40,000.

c. -$38,600.

d. -$37,600.

e. -$36,600.

2. What is the operating cash flow in Year 2?

a. $ 9,000

b. $10,240

c. $11,687

d. $13,453

e. $16,200

3. What is the total value of the terminal year non-operating cash flows at the end of Year 3?

a. $18,120.

b. $19,000.

c. $21,000.

d. $25,000.

e. $27,000.

4. What is the projects NPV?

a. $2,622.

b. $2,803.

c. $2.917.

d. $5,712.

e. $6,438.