1. Mayco, Inc. is considering the purchase of a new machine for $60,000. The machine will reduce manufacturing costs by $5,000 annually.
2. 
   
3. Mayco will use the modified accelerated cost recovery system (MACRS) accelerated method (5-year asset) to depreciate the machine and expects to sell the machine at the end of its 6-year operating life for $10,000.
4. 
   
5. The firm expects to be able to reduce net working capital by $15,000 when the machine is installed, but the required working capital will return to the original level when the machine is sold after six years.
6. 
   
7. Mayco's marginal tax rate is 40%, and it uses a 12% cost of capital to evaluate projects of this nature.

1. The first year's operating cash flow and terminal year's cash flow excluding the last year's operating cash flow are closest to:

1. $7,800 OCF and -$4,000 CF.
2. $7,800 OCF and -$9,000 CF.
3. Please explain
4. $4,800 OCF and -$4,000 CF.

Answer rating: 100% (QA)

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