Question
The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it
The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's 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 firm's before-tax revenues by $20,000 per year but wuld also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40%, and the project's required rate of return is 14%. What is the supplemental operating cash flow in Year 2?
a. | $9,000 | |
b. | $10,240 | |
c. | $11,687 | |
d. | $13,453 | |
e. | $16,200 |
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