Calculate the non-operating terminal year cash flow

Reference no: EM131794179

Qusetion: The Marchal Company is evaluating the proposed acquisition of a new machine. The machine's base price is $240,000, and it would cost another $15,000 to modify it for special use. The machine falls into the MACRS 3-year class, and it would be sold after 2 years for $65,000. The machine would require an increase in net working capital of $5,000. The machine would have no effect on revenues, but it is expected to save the firm $80,000 per year for 2 years in before-tax operating costs. The company's marginal tax rate is 35% and its cost of capital is 10 percent.

a. Calculate the cash outflow at time zero.

b. Calculate the net operating cash flows for Years 1 and 2.

c. Calculate the non-operating terminal year cash flow.

d. Calculate NPV. Should the machinery be purchased? Why or why not? (Please show all work).

Reference no: EM131794179

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