Question
You work for a company that is evaluating equipment that would increase operational efficiencies but would not increase revenue. The equipment costs $800,000 and should
You work for a company that is evaluating equipment that would increase operational efficiencies but would not increase revenue. The equipment costs $800,000 and should reduce annual operating costs by $280,000 over its life. Your firm will use straight-line depreciation over the 3-year life to a $0 book value. The equipment will require the firm to hold an extra $25,000 of inventory over the 3-year period. Assume the firm sells the equipment for $30,000 at the end of the 3-year period. The discount rate is 12 percent, and the tax rate is 21 percent. In analyzing the projects cash flows, what amount should be used for net working capital in Year 3 of the project?
Group of answer choices
$25,000
$25,000
$19,750
$0
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