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 $2881 and recommended the purchase of the latest model from ACME Corp. of America. The equipment costs $76342, and it will cost another $10551 to modify it for special use by your firm. The equipment will be fully depreciated on a straight-line basis over 7 years. You expect the equipment will be sold after 3 years for $25581. Use of the equipment will require an increase in your company's net working capital of $4997, but this $4997 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 $26356 per year in before-tax operating costs. Your company's marginal tax rate is 30%. What is the terminal cash flow for this project, to the nearest dollar?
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