Question
In: Finance
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $250,000, and it would cost another $37,500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $62,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require a $10,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $79,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%.
A. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent. Negative amount should be indicated by a minus sign. $
B. What are the project's annual cash flows in
Years
1$
2$
3$
Round your answers to the nearest cent.
C. If the WACC is 10%, should the spectrometer be purchased? Options are: Yes or No
Solutions
jeff jeffy answered 2 years agoRelated Solutions
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $200,000, and it would
cost another $50,000 to modify the equipment for special use by the
firm. The equipment falls into the MACRS 3-year class and would be
sold after 3 years for $50,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $10,000
increase in net operating working capital (spare parts inventory).
The project would have...
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $280,000, and it would
cost another $56,000 to modify the equipment for special use by the
firm. The equipment falls into the MACRS 3-year class and would be
sold after 3 years for $126,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $7,000
increase in net operating working capital (spare parts inventory).
The project would have...
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $190,000, and it would
cost another $28,500 to modify the equipment for special use by the
firm. The equipment falls into the MACRS 3-year class and would be
sold after 3 years for $76,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $14,000
increase in net operating working capital (spare parts inventory).
The project would have...
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $240,000, and it would
cost another $36,000 to modify the equipment for special use by the
firm. The equipment falls into the MACRS 3-year class and would be
sold after 3 years for $108,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $8,000
increase in net operating working capital (spare parts inventory).
The project would have...
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $60,000, and it would
cost another $12,000 to modify the equipment for special use by the
firm. The equipment falls into the MACRS 3-year class and would be
sold after 3 years for $27,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require an $13,000
increase in net operating working capital (spare parts inventory).
The project would have...
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $270,000, and it would
cost another $67,500 to modify the equipment for special use by the
firm. The equipment falls into the MACRS 3-year class and would be
sold after 3 years for $135,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $9,000
increase in net operating working capital (spare parts inventory).
The project would have...
you must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
you must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $240,000, and it would
cost another $36,000 to modify the equipment for special use by the
firm. The equipment falls into the MACRS 3-year class and would be
sold after 3 years for $108,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $8,000
increase in net operating working capital (spare parts inventory).
The project would have...
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $90,000, and it would
cost another $13,500 to modify the equipment for special use by the
firm. The equipment falls into the MACRS 3-year class and would be
sold after 3 years for $40,500. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require an $14,000
increase in net operating working capital (spare parts inventory).
The project would have...
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $70,000, and it would
cost another $14,000 to modify the equipment for special use by the
firm. The equipment falls into the MACRS 3-year class and would be
sold after 3 years for $24,500. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require an $9,000
increase in net operating working capital (spare parts inventory).
The project would have...
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $80,000, and it would
cost another $16,000 to modify the equipment for special use by the
firm. The equipment falls into the MACRS 3-year class and would be
sold after 3 years for $40,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require an $12,000
increase in net operating working capital (spare parts inventory).
The project would have...
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