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    Total value of the terminal year non-operating cash flows at end of year 3

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    Evaluate the proposed acquisition of a new computer. The computer's price is $40,000, 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 $20,000 per year but would also increase operating costs by $5,000 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. Showing the computation what is the total value of the terminal year non-operating cash flows at the end of Year 3?

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    Solution Preview

    Treminal year non operating cash flow will include

    1. Return of working ...

    Solution Summary

    In a clear explanation, the response shows the calculation to arrive at the answer to the problem.

    $2.19

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