Jason Inc is considering the purchase of a new machine for $100,000 that will reduce manufacturing costs by $5,000 annually. Jason will use MACRS accelerated method (5 years) to depreciate the machine, and expects to sell the machine at the end of its 6-year operating life of $10,000.The firm expects to be able to reduce net working capital by $30,000 when the machine is installed, but required working capital will return to the original level when machine is sold after 6 years.
Jason's marginal tax rate is 40%, and it uses 12% cost of capital to evaluate projects of this nature.
15.What is the first year's MACRS depreciation?
16 What is the initial cash outlay?
17 What is the first year's operating cash flow?
18. What is the terminal year's operating cash flow?
