The president of Lowell Inc. has asked you to evaluate the proposed acquisition
ID: 2757492 • Letter: T
Question
The president of Lowell Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $60,000, and it falls into the MACRS 3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4). 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 $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 4 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 investment required at t = 0?
-$42,000
-$62,000
-$38,600
-$37,600
-$36,600
a.-$42,000
b.-$62,000
c.-$38,600
d.-$37,600
e.-$36,600
Explanation / Answer
Net investment required at t = 0 = -$62000
Cost of Computer -60000 Increase in Net Working capital -2000 Cash Flow -62000Related Questions
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