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You are evaluating a potential investment in equipment
You are evaluating a potential investment in equipment. The equipment's basic price is $184,000, and shipping costs will be $3,700. It will cost another $23,900 to modify it for special use by your firm, and an additional $12,900 to install it. The equipment falls in the MACRS 3-year class that allows depreciation of 33% the first year, 45% the second year, 15% the third year, and 7% the fourth year. You expect to sell the equipment for 29,200 at the end of three years. The equipment is expected to generate revenues of $168,000 per year with annual operating costs of $82,000. The firm's marginal tax rate is 45.0%. What is the after-tax operating cash flow for year 2?
Group of answer choices
$101,025
-$8,264
$86,000
-$15,025
$92,761
Expert Solution
Cost of machine = $ 184,000+3,700+23,900+12,900
Cost of machine = $ 224,500
Depreciation for 2nd year = $ 224,500 × 45%= $ 101,025
Calculation of operating cash inflows for 2nd year:-
| Particulars | Amount |
| Sales | 168,000 |
| Less- cost | 82,000 |
| Less- depreciation | 101,025 |
| Profit or (loss) before tax | (15,025) |
| Less-Tax or (tax shield) @45% | 6,761.25 |
| Profit after tax | (8,263.75) |
| Add-Depreciation | 101,025 |
| Operating cash inflows for 2nd year | 92,761.25 |
Operating cash inflows for 2nd year = $ 92,761
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