What is the net cash flow for the third year

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Question - Global Power Systems (GPS) is considering the acquisition of a new machine at a cost of $900,000. Transporting the machine to GPS' manufacturing plant will cost $60,000. Installing the machine will cost an additional $90,000. It has a 10-year life and is expected to have a salvage value of $50,000. Furthermore, the machine is expected to produce 4,000 units per year with a selling price of $2,500 and combined direct materials and direct labor costs of $2,250 per unit. Federal tax regulations permit machines of this type to be depreciated using the straight-line method over 5 years with no estimated salvage value. GPS has a marginal tax rate of 40%.

Required - What is the net cash flow for the third year that GPS should use in a capital budgeting analysis?

Reference no: EM132759111

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