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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 $1,500 and recommended the purchase of the latest model from ACME Corp. of America. The equipment costs $80,000, and it will cost another $10,000 to modify it for special use by your firm. The equipment will be depreciated on a straightline basis over six years with no salvage value. You expect the equipment will be sold after three years for $28,000. Use of the equipment will require an increase in your company's net working capital of $4,000, but this $4,000 will be recovered at the end of year three.The use of the equipment will have no effect on revenues, but it is expected to save the firm $50,000 per year in beforetax operating costs. Your company's marginal tax rate is 35%. What is the terminal cash flow for this project? A.$75,700 B.$33,950 C.$41,750 D.($17,000)
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