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Calculating net operating cash flow for the initial year

**Question1**)

Assume new instruments for a firm cost $18,000 with an extra installation fee of $2,000, both of which are depreciable. Complete the depreciation schedule shown below using the Modified Accelerated Cost Recovery System (MACRS) 3-year class.

Year Rate Basis Depreciation

1

2

3

4

**Question2**)

A company is evaluating a proposed 4-year project. The depreciable cost would include the following: $300,000 for the equipment, $20,000 for shipping, and $30,000 for installation. The depreciation life is under the MACRS 3-year class, with a salvage value of $45,000. The inventories would rise by $18,000 and accounts payable would rise by $3,000. Additionally, the new sales are estimated to be 150,000 units per year at $2.25 per unit. There is a variable operating cost that is 60% of sales and the company’s marginal tax rate is 35%. Complete parts (a) through (c) below.

**a)** Find out the net operating cash flow for the initial year (Year 0).

**b)** Find out the net operating cash flow for Years 1, 2, and 3.

**c)** Find out the net terminal year cash flow.

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