Invest in asset that will have three-year life

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Reference no: EM131981270

Suppose a company is looking to invest in an asset that will have a three-year life. The cost of the asset (including shipping and installation costs) is $40.3 million and the project will also require an initial investment of $11.1 million in net working capital. The company is planning to use the 3-year MACRS schedule to estimate depreciation in each year. Recall that the MACRS schedule assumes 33.33% depreciation in the first year, 44.45% depreciation in the second year, 14.81% depreciation in the third year, and 7.41% depreciation in the fourth year. The company has estimated that they will be able to sell the asset at the end of the third year for $4.3 million. If the marginal tax rate is 34%, what is the terminal cash flow in the third year?

Reference no: EM131981270

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