What are the net operating cash flows in year one

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Reference no: EM132061123

The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firm’s R&D department The equipment's basic price is $51,000, and it would cost another $9,000 to modify it for special use by your firm (this modification cost is also depreciable). The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $21,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $2,400. The machine would have no effect on revenues, but it is expected to save the firm $24,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 40%.

What are the net operating cash flows in Year 1? Note that the MACRS depreciation percentage in year one is 33.33%.

Reference no: EM132061123

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