What is total value of ending cash flow in year three

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You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose machine. The machine's basic price is $1,000,000 and our accountant requires that it be written off over its 5 year class using straight line depreciation to a book value of $0. Purchase of the machine would require an increase in net working capital of $20,000 at t=0 only. The machine would increase the firm's before tax revenues by $960,000 per year but would also increase operating costs by $100,000 per year. It is expected to be used for 3 years and then be sold for $800,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 18 percent. (Please show your work) a) What is the net investment required at t=0? b) What are the operating cash flows each year? c) What is the total value of ending (non operating) cash flow in year 3? d) What is the project's NPV?

Reference no: EM132067183

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