Question

You are evaluating the proposed acquisition of a new computer. The computer's price is $ 7 0,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $ 27 ,000 per year but would also increase operating costs by $ 15 ,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.
What is the operating cash flow in Year 2? Round it to a whole dollar, and do not include the $ sign.

Year	MACRS Percent
1	0.33
2	0.45
3	0.15
4	0.07

Answer 1

	0	1	2	3
Increase in before tax revenues		$      27,000	$        27,000	$       27,000
Increase in operating costs		$      15,000	$        15,000	$       15,000
Depreciation		$      23,100	$        31,500	$       10,500
Incremental NOI		$    -11,100	$      -19,500	$         1,500
Tax at 40%		$       -4,440	$        -7,800	$             600
Incremental NOPAT		$       -6,660	$      -11,700	$             900
Add: Depreciation		$      23,100	$        31,500	$       10,500
Incremental operating cash flow		$      16,440	$        19,800	$       11,400
			Answer