What is the terminal cash flow

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Reference no: EM132030465

First American is considering buying a new machine to increase production. It will cost $3,000. Shipping will be $300. It has a three-year class life. At the end of one year they plan to sell the machine for $2,000. The new machine will allow FA to increase revenues by $1,800 each year but expenses will increase by $400 each year. If the new machine is purchased, inventory will decrease by $1,000 and accounts payable will increase by 350. Straight-line depreciation will be used. FA’s marginal tax rate is 34% and its cost of capital is 7%. What is the NICO for this project?

What is the Terminal Cash Flow (TCF)

a) $395

b) $3,605

c) $905

d) $2,255

Should FA accept this project?

a) Yes, the NPV is $65.89

b) No, the NPV is -$65.89

c) No, the NPV is -$543

d) No, the NPV is -$912

Reference no: EM132030465

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