What is the after-tax salvage value of the asset

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Reference no: EM132046012

The DoNotMissSnow Company is evaluating an asset that may increase sales by $120,000 every year for 4 years. There is no expected change in net operating working capital. The company's cost of capital is 6%. The proposed asset costs $400,000, will require $20,000 to modify for operations, and falls in the 3-year class MACRS for depreciation rates: .33, .45, .15, and .07 for years 1 through 4, respectively. At the end of the 4 years, it is expected that the asset may sell for $30,000. The company's tax rate is 21%. a) What is the initial outlay for this project? b) What are the operating cash flows in Years 1 through 4? c) As part of the terminal cash flow in Year 4, what is the after-tax salvage value of the asset? d) What is the net present value of this proposed asset investment? Should it be accepted or rejected?

Reference no: EM132046012

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