Julio Company purchased a $200,000 machine that has a four-year life and no salvage value. The company uses straight-line depreciation on all asset acquisitions and is subject to a 30% tax rate. The proper cash flow to show in a discounted-cash-flow analysis as occurring at time 0 would be:

Question

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The initial cash flow at time 0 for the purchase of the machine would be the full purchase price of $200,000, which is an outflow, hence $(200,000). Straight-line depreciation and tax effects are not considered in the initial cash outlay but affect future cash flows.

Julio Company Purchased a $200,000 Machine That Has a Four-Year