Use the Following Information for Questions 8-A Through 8-C

question 15

Essay

Use the following information for questions 8-a through 8-c. You have been asked to evaluate the purchase of a new machine for your company. It will cost $60,000, and it falls into the MACRS 3-year class (Yr. 1 - 33.3%; Yr. 2 - 44.4%; Yr. 3 - 14.8%; Yr. 4 - 7.5%). The purchase will require a $6,000 increase in repair parts inventory. Parts are expensed for tax purposes at the time they are acquired. The machine will replace one $25,000/year operator. It is expected to last for four years when it can be sold including any spare parts still on hand for $5,000. The tax rate is 40% and your company's cost of capital is 12%.
a. What is the initial outlay for this project?
a. $46,000
b. $48,000
c. $54,000
d. $60,000
e. $66,000
b. What is the (operating)cash flow in Year 2?
a. $10,656
b. $15,000
c. $25,656
d. $26,640
e. $41,640
c. What is the cash flow in year 4?
a. $30,000
b. $18,000
c. $17,000
d. $19,800
e. $11,000

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