e CEO of Network World Inc. has asked you to evaluate the proposed acquisition o

Question

e 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 rating working capital of s 5.000 The computer would the firmi's before-tax revenues by $30,000 per year but would also increase operating costs by computer would require an increase in net ope increase s 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 -o? Cash outflow should be in negative number e g -33,000, and do not include the S s1g0

Explanation / Answer

Computer purchase cost -80000 Increase in net operating working capital -5000 Net cash flow at t =0 -85000

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