Reference no: EM132051259

Question: The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class (33%, 45%, 15%, and 7%). Purchase of the computer would require an increase in net working capital of $2,000 at the very beginning of the analysis (assume that this will be captured back only at the very end of the analysis). The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent (assume that the increase in net working capital is captured back in the last period, and that all depreciation related cashflows are to be evaluated at the nominal risky rate, 14 percent). What is the net investment required at t = 0 (include changes in net working capital)? What is the operating cash flow in Year 2? What is the total value of the terminal year non-operating cash flows at the end of Year 3 (look at salvage value recovery and change in net working capital)? What is the project's NPV?