You are analyzing the purchase of new equipment. Since you are not an expert in this type of equipment, you hire a consulting firm to make recommendations. The consultant charged him $1,500 and recommended the purchase of the latest model from Equipment Corp. of America. The equipment costs $80,000 and it will cost another $10,000 to modify it for your company's special use. The equipment will depreciate in a straight line over six years with no salvage value. You expect the equipment to sell after three years for $28,000. The use of the equipment will require an increase in your company's net working capital of $4,000, but this $4,000 will be recouped at the end of the third year. The use of the equipment will have no effect on revenue, but the company is expected to save $50,000 per year in operating costs before taxes. Your company's marginal tax rate is 35%. 

What is the cash flow from the incremental fee for the first year of the project? 

What is the terminal cash flow for this project?

 What is the initial outlay required to finance this project?

Answer rating: 100% (QA)

To determine the cash flow from the incremental fee for the first year of the project we need to consider the incremental revenue and expenses associa... View the full answer