The president of your firm has asked you to evaluate the proposed acquisition of a new computer The computer’s price is $60,000, and it falls into the MACRS 3-year class (33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4) Purchase of the computer would require an increase in net operating working capital of $2,000 The computer would increase the firm’s before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year The computer is expected to be used for 4 years and then be sold for $25,000 The firm’s marginal tax rate is 40 percent, and the project’s cost of capital is 14 percent
What is the operating cash flow in Year 2?
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