Question
In: Finance
The Data Tank, Inc. has asked you to evaluate the proposed acquisition of a new computer....
The Data Tank, Inc. has asked you to evaluate the proposed
acquisition of a new computer. The computer's price is $60,000, and
it falls into the 4-year straight-line depreciation to $4,000. The
purchase of the computer would require an increase in net operating
working capital of $3,500. The computer would increase the firm's
before-tax revenues by $60,000 per year but would also increase
operating costs by $8,000 per year. The computer is expected to be
used for 3 years and then be sold for $25,000 at the end of Year 3.
The company will recover all capital at the end of the operation
cycle. The firm's marginal tax rate is 40 percent, and the
project's cost of capital is 11 percent.
The MACRS table - 33.33%, 44.45%, 14.81%, and 7.41% for Years 1
through 4.
Solutions
Expert Solution
PV of Cashflows is positive. Computer should be purchased.
Formulas used
Since in beginning of the question it is mentioned Depriciation on SLM same is used.
jeff jeffy answered 2 years agoRelated Solutions
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