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Your company is considering investing in a new system that will cost $160,000. In addition, it costs $40,000 to adapt the system to be compatible
Your company is considering investing in a new system that will cost $160,000. In addition, it costs $40,000 to adapt the system to be compatible with existing IT infrastructure and operational. It is estimated that the system will increase sales/revenues by $150,000 annually for Years 1-6. Operating expenses, other than depreciation, are expected to be equal to 60 percent of sales in each year. The system will be depreciated on a MACRS basis over 6 years (20% in year 1.32% in year 2.19.20% in year 3, 11.52% in year 4. 11.52% in year 5, and 5.76% in year 6) to a zero book value. The system will be terminated at the end of year 5 and the expected salvage value at Year 5 is $40,000. The firm will also be required to invest $25,000 in net working capital at Year 0, but will recapture this amount at Year 5. Your company's tax rate on is 40 percent What is the total cash outflow in year 0? A. $40.000 OB. $160,000 C. $185.000 D. $200,000 E. $225,000
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