Question
You have been asked by the president of your company to evaluate the proposed acquisition of new equipment. The equipments basic price is $195,000, and
You have been asked by the president of your company to evaluate the proposed acquisition of new equipment. The equipments basic price is $195,000, and shipping costs will be $3,900. It will cost another $23,400 to modify it for special use by your firm, and an additional $9,800 to install the equipment. The equipment falls in the MACRS 3- year class, and it will be sold after three years for $30,200. The equipment is expected to generate revenues of $179,000 per year with annual operating costs of $90,000. The firms tax rate is 25.0%.
MACRS Ownership year 3-year 1 33% 2 45% 3 15% 4 7%
6. What is the net investment (initial outlay) for the project? a. $232,100 b. $195,000 c. $208,700 d. $218,400 e. $201,900
7. What is the operating cash flow for year 1? a. $9,305 b. $85,898 c. $89,000 d. $12,407 e. $76,593
8. What is the operating cash flow for year 2? a. $89,000 b. -$11,584 c. $92,861 d. -$15,445 e. $104,445
9. What is the operating cash flow for year 3? a. $75,454 b. $40,639 c. $89,000 d. $54,185 e. $34,815
10. What is the value of the terminal year non-operating cash flows at the end of Year 3? (What is the after-tax cash flow associated with the sale of the equipment?) a. $13,953 b. $22,650 c. $26,712 d. $10,465 e. $12,759
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