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Mars Inc. is considering the purchase of a new machine that costs $80,000. This machine will reduce manufacturing costs by $20,000 annually. Mars will use the 3-year MACRS method (shown below) to depreciate the machine, and it expects to sell the machine at the end of its 5-year life for $10,000 salvage value. The firm expects to be able to reduce net operating working capital by $8,000 when the machine is installed, but the net working capital will return to the original level when the project is over (i.e., after 5 years). Mars's marginal tax rate is 40 percent, and it uses a 12 percent cost of capital to evaluate projects of this nature. Calculate the net cash flows of the project. Cash outflows should be negative numbers, and round it to a whole number, e.g., -23,500.
| Year | MACRS % |
| 1 | 0.33 |
| 2 | 0.45 |
| 3 | 0.15 |
| 4 | 0.07 |
| 5 | 0.11 |
| 6 | 0.06 |
| CF0 | |
| CF1 | |
| CF2 | |
| CF3 | |
| CF4 | |
| CF5 |
May 21 2020 View more View Less
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