Question
You are considering a machine that will cost $ 5,795 at Time 0 and which can be sold after 3 years for $ 869 .
You are considering a machine that will cost $ 5,795 at Time 0 and which can be sold after 3 years for $ 869 . To operate the machine, $ 747 must be invested at Time 0 in inventories; these funds will be recovered when the machine is retired at the end of Year 3. The machine will produce sales revenues of $ 1,160 /year for 3 years; variable operating costs (excluding depreciation) will be 47 percent of sales. Operating cash inflows will begin 1 year from today (at Time 1). The machine is in the 3-year MACRS class. The MACRS class has depreciation of 33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4. The company has a 41 percent tax rate, enough taxable income from other assets to enable it to get a tax refund from this project if the project's income is negative, and a 10 percent cost of capital. Inflation is zero. What are the total cash flows in year 2?
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