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The following data apply to the next three questions.          You have been asked to evaluate...

The following data apply to the next three questions.

         You have been asked to evaluate the proposed acquisition of a new machine to expand your company’s product line. The machine’s purchase price is $740,000. It would be depreciated straight-line, down to zero, over four years. Purchase of the machine would require an increase in net working capital of $100,000. The machine would generate $400,000 before-tax revenues per year but would have operating costs of $150,000 per year. The machine is expected to be used for 3 years and then be sold for $185,000. The firm’s marginal tax rate is 40%, and the project’s cost of capital is 12%.

13.    What is the initial (t=0) cash outflow?

         a.     $680,000                                        b.      $840,000

         c.     $815,000                                        d.      $720,000

14.    What is the total project cash flow at t=1?

         a.        $150,000                                     b.      $222,000

         c.        $224,000                                     d.      $237,000

15.    What is the total project cash flow at t=3?

         a.        $484,000                                     b.      $317,000

         c.        $497,000                                     d.      $509,000

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jeff jeffy answered 1 year ago
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