FAR Corporation FAR Corporation Is Considering a New Project to Manufacture Widgets

question 33

Multiple Choice

FAR Corporation
FAR Corporation is considering a new project to manufacture widgets. The cost of the manufacturing equipment is $150,000. The cost of shipping and installation is an additional $15,000. The asset will fall into the 3-year MACRS class. The year 1-4 MACRS percentages are 33.33%, 44.45%, 14.81%, and 7.41%, respectively. Sales are expected to be $300,000 per year. Cost of goods sold will be 80% of sales. The project will require an increase in net working capital of $15,000. At the end of three years, FAR plans on ending the project and selling the manufacturing equipment for $35,000. The marginal tax rate is 40% and FAR Corporation's appropriate discount rate is 12%.
-Refer to FAR Corporation.What is the after-tax cash flow from selling the machine at the end of year 3?

• A) -$9,554
• B) $35,000
• C) $9,554
• D) $25,446

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