The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $70,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $30,000 per year but would also increase operating costs by $15,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent. What is the net cash flow at t = 0? Cash outflow should be in negative number, e.g., -33,000, and do not include the $ sign.

Mars Inc. is considering a 5-year project that requires a new machine that costs $65,000, and an additional net working capital of $4,000, which will be recovered when the project ends in 5 years. This project would increase the firm's revenues by $21,000 per year and its operating costs by $9,000 per year. Mars will use the 3-year MACRS to depreciate the machine, and it expects to sell the machine at the end of the project for $19,000. The firm's marginal tax rate is 28 percent, and the project's cost of capital is 14 percent. What is the net cash flow at year 5, the final year? MACRS 3-year schedule is as follows: 33%, 45%, 15%, and 7% for years 1 to 4, respectively.   Question 14 options:   $24,760   $25,460   $25,840   $26,320   $26,680   $27,140

Vikarmbhai

We assume that the company that you selected is considering a new project. The project has 8 years' life. This project requires an initial investment of $580 million to purchase equipment, and $30 million for shipping & installation fees. The fixed assets fall in the 7-year MACRS class. The salvage value of the fixed assets is 10% of the purchase price (including the shipping & installation fee). The number of units of the new product expected to be sold in the first year is 2,660,000 and the expected annual growth rate is 10.5%. The sales price is $280 per unit and the variable cost is $225 per unit in the first year, but they should be adjusted accordingly based on the estimated annualized inflation rate of 3.0%. The required net operating working capital (NOWC) is 11.8% of sales with the corporate tax rate of 21%. The project is assumed to have the same risk as the corporation, so 5.35% is the discount rate for this hypothetical project. Estimate annual cash flows for the 8 years.…