TheyChat Ltd has asked you to evaluate the proposed acquisition of a new computer system. The system's
Question:
TheyChat Ltd has asked you to evaluate the proposed acquisition of a new computer system. The system's price is $30,000, installation costs are $9,000, and the system will be depreciated straight-line over a three-year life. Purchase of the system would require an increase in net operating working capital of $2,000. The system 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 system is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 30%. What is the net operating net cash flow in Year 1?
Select one:
a. $10,240
b. $13,453
c. $9,000
d. $14,400
e. $11,687
Introduction to Corporate Finance
ISBN: 978-0324657937
2nd edition
Authors: Scott B. Smart, William L Megginson