Co. is considering purchasing a piece of equipment costing $300,000. It has a useful life...
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Co. is considering purchasing a piece of equipment costing $300,000. It has a useful life of 3 years and will be depreciated straight-line to zero, after which it will be scrapped for $20,000. This piece of equipment will save Teer Co. $125,000 per year in pretax operating costs during its useful life but requires an initial investment in NWC of $50,000. Teer Co. has a 20% tax rate and a required rate of return of 10%.
What is the annual Operating Cash Flow (OCF) of this piece of equipment in Years 1-3?
A.) 170k
B.) 149k
C.) 98k
D.) 120k
What is the Year 3 IATCF (Investment After-Tax Cash Flow)? Hint: You need to account for the after-tax salvage value and for net working capital.
A.) 142k
B.) 186k
C.) 171k
D.) 204k
What is the NPV of purchasing this piece of equipment?
A.)-$1991
B.)$2874
C.)$4096
D.) -$3984
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