You have been asked by the president of your company to evaluate the proposed acquisition of a new flux capacitor for the firms R&D department. The equipments basic price is $70,000 and it would cost another $15,000 to modify it for special use by your firm. The flux capacitor, which has a MACRS 3-year recovery period, would be sold after 3 years for $30,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The flux capacitor would have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firms marginal tax rate is 40 percent. If the projects cost of capital is 10 percent, should the flux capacitor be purchased?

1. What is the salvage value?

a.$16,583.82

b.$18,368.12

c.$20,519.40

d.$22,389.21

What is the OCF in year 1?

a.$26,332.20

b.$30,113

c.$24,332.40

d.$27,446

What is the CF for year 3?

a.$19,146.80

b.$43,221.60

c.$20,035.40

d.$44,554.80