You are analyzing the purchase of new equipment. Since you are not an expert on this type of

equipment, you hire a consulting firm to make recommendations.

The consultant charged you
$1,500 and recommended the purchase of the latest model from ACME Corp of America. The
equipment costs $80,000, and it will cost another $10,000 to modify it for special use by your firm.
The equipment will be depreciated on a straight-line basis over six years with no salvage value.
You expect the equipment will be sold after three years for $28,000. Use of the equipment will
require an increase in your company's net working capital of $4,000, but this $4,000 will be
recovered at the end of year three. The use of the equipment will have no effect on revenues, but it
is expected to save the firm $50,000 per year in before-tax operating costs. Your company's
marginal tax rate is 35%. What is the terminal cash flow for this project?
A) $24,500 B) $33,950 C) $37,950 D) ($17,000)

C