The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3- year class. Purchase of the computer would require an increase in net operating working capital of $6,000, which would be recovered when the computer is sold. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $24,000. The firm's marginal tax rate is 20 percent, and the project's cost of capital is 14 percent. What is the total value of the terminal year non-operating cash flows at the end of Year 3? Round it to a whole dollar, and do not include the $ sign. Year MACRS 1 2 3 Percent 0.33 0.45 0.15 0.07 Your Answer:

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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The president of Real Time Inc. has asked you to evaluate the proposed acquisition
of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-
year class. Purchase of the computer would require an increase in net operating
working capital of $6,000, which would be recovered when the computer is sold. The
computer would increase the firm's before-tax revenues by $20,000 per year but
would also increase operating costs by $5,000 per year. The computer is expected to
be used for 3 years and then be sold for $24,000. The firm's marginal tax rate is 20
percent, and the project's cost of capital is 14 percent.
What is the total value of the terminal year non-operating cash flows at the end of
Year 3? Round it to a whole dollar, and do not include the $ sign.
Year MACRS
Percent
1
2
3
4
0.33
0.45
0.15
0.07
Your Answer:
Transcribed Image Text:The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3- year class. Purchase of the computer would require an increase in net operating working capital of $6,000, which would be recovered when the computer is sold. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $24,000. The firm's marginal tax rate is 20 percent, and the project's cost of capital is 14 percent. What is the total value of the terminal year non-operating cash flows at the end of Year 3? Round it to a whole dollar, and do not include the $ sign. Year MACRS Percent 1 2 3 4 0.33 0.45 0.15 0.07 Your Answer:
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