Question
The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firms R&D department.
The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firms R&D department. The equipments basic price is $84,623, and it would cost another $9,403 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $33,849. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,976. The machine would have no effect on revenues, but it is expected to save the firm $36,587 per year in before-tax operating costs, mainly labor. The firms marginal federal-plus-state tax rate is 21.0% and its cost of capital is 14.0%. How much is the year 1 operating cash flow for this project?
$34,822 | ||
$35,485 | ||
$36,900 | ||
$38,261 | ||
$48,458 |
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