The CEO of Network World Inc. has asked you to evaluate the proposed acquisition
ID: 2657736 • Letter: T
Question
The CEO of Network World Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $ 8 0,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $ 4 ,000. The computer would increase the firm's before-tax revenues by $30,000 per year but would also increase operating costs by $ 19 ,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.
Explanation / Answer
Net cash flow ar year 0=-(investment+working capital)
=-80000-4000=-84000
There is cash out flow at t=0 and it is 84000
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