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The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer.The computer's price is $40,000, and it falls in...
The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls in the MACRS 3-year class. The applicable depreciation rates are 33 percent, 45 percent, 15 percent, and 7 percent. 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 three years and then sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent. Should the acquisition be made?
