Information for next four questions: The Nullcom Inc. is considering to purchase a new machine. The cost of the machine is $200,000 and installation of $10,000. The machine will be depreciated straight-line to zero. The new machine needs an increase of new working capital of $30,000. Nullcom expects an increase of revenues of $140,000 and increases of expenses of $45,000. Nullcom expects to sell the machine for $25,000 at the end of year 3. The marginal tax rate is 40% and the cost of capital is 8%.
- What are the costs today?
- What are the depreciable value of the equipment over 3 years?
- What are the net operating cash flows for years 1, 2 and 3? Hint: all cash flows are the same.
- What is the terminal cash flow?