You are evaluating the proposed acquisition of a new computer. The computer\'s p

Question

You are evaluating 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 s 3,000. 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 $ 19,000. The firm's marginal tax rate is 40 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 S sign Year MACRS Percent 0 33 2 0 45s 30 15 4 o07

Explanation / Answer

Answer: -19000

Non-operating cash flow are inflows and outflows of cash which are not related to core operating activities of the business. The only non operating outflow of cash in year 3 is related to the sale of computer for $19000, rest all activities will get reflected in the operating cash flow statement. hence the total value of non-operating cash flow at the terminal year at the end of year 3 is (-)$19000.

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