Question

The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firm’s R&D department. The equipment's basic price is $160,000, and it would cost another $24,000 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $56,000. The MACRS rates for the first 3 years are 0.3333, 0.4445 and 0.1481. Use of the equipment would require an increase in net working capital (spare parts inventory) of $9,600. The machine would have no effect on revenues, but it is expected to save the firm $64,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 30%. What is Net operating cash flow for year 1,2,3. Cash flow in year 3, NPV if the cost of capital is 12%

Answer 1