CFA Practice Question

There are 151 practice questions for this study session.

CFA Practice Question

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 into the MACRS 3-year class. Purchase of the computer would require an increase in net 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 3 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 net investment required at t = 0?
A. -36,600.
B. -38,600.
C. -42,000.
Explanation: Initial investment: Cost ($40,000)
Change in NWC (2,000)
($42,000)

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