Modify equipment for special use by the firm

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Reference no: EM131339705

You must evaluate the purchase of a new machine for a company. The based price is $165,000, and it would cost another $45,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $40,000. The applicable depreciation rates are 33%, 45%, 15% and 7%. The equipment would require an $10,000 increase in the net operating working capital. The project would have no effect on revenues, but it should save the firm $75,000 per year in before-tax costs. The firm’s marginal tax rate is 40%. The company’s WACC is 11% What is the project’s cash flow for year 3? 97,480 105,360 72,720 None of the given answers is correct 84,560

Reference no: EM131339705

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