Question
You are analyzing the purchase of new equipment. Since you are not an expert on this type of equipment, you hire a consulting firm to
You are analyzing the purchase of new equipment. Since you are not an expert on this type of equipment, you hire a consulting firm to make recommendations. The consultant charged you $3159 and recommended the purchase of the latest model from ACME Corp. of America. The equipment costs $77374, and it will cost another $9802 to modify it for special use by your firm. The equipment will be depreciated on a straight-line basis over 8 years with no salvage value. You expect the equipment will be sold after 3 years for $25618. Use of the equipment will require an increase in your company's net working capital of $5482, but it will be recovered at the end of year 3. The use of the equipment will have no effect on revenues, but it is expected to save the firm $48490 per year in before-tax operating costs. Your company's marginal tax rate is 32%. What is the incremental free cash flow in the first year of the project, to the nearest dollar?
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