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What are the operating cash flows in years one and two

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You have been asked by the president of Ellis Construction Company, headquarter in Toledo, to evaluate the proposed acquisition of a new earth-mover. The mover's basic price is 50,000, and it will cost another 10,000 to modify it for special use by Ellis Construction. It will be sold after 3 years for 20,000, and it will require an increase in net operating working capital (spare parts inventory) of 2,000. the earth-mover purchase will have no effect on revenues, but it is expected to save Ellis 20,000 per year in before-tax operating costs, mainly labor. Ellis's tax rate is 40 percent.

Question A. What is the company's net investment if it acquires the Earth-mover?

Question B. What are the operating cash flows in Years 1, 2, and 3? (note: same cash flow for 3 years)

Question C. What is the terminal year cash flow?

Reference no: EM132755906

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