You are analyzing the purchase of new equipment. Since you are not an expert on this type of equipment, you hire a consulting firm to make recommendations. The consultant charged you $2,500 and recommended the purchase of the latest model from Equipment Corp. of America. The equipment costs $60,000, and it will cost another $12,000 to modify it for special use by your firm. The equipment will be depreciated on a straight-line basis over six years with no salvage value. You expect the equipment will be sold after three years for $18,000. Use of the equipment will require an increase in your company's net working capital of $3,000, but this $3,000 will be recovered at the end of year three. The use of the equipment will have no effect on revenues, but it is expected to save the firm $30,000 per year in before-tax operating costs. Your company's marginal tax rate is 40%. What is the terminal cash flow for this project?
The expert calculates the terminal cash flow in the purchase of new equipment. Before-tax operating costs for a company's marginal tax rate is determined.