Question
In: Finance
The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of...
The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of a new chromatograph for the firm’s R&D department. The equipment’s basic price is $70,000, and it would cost another $15,000 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $30,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The machine would have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm’s marginal federal-plus-state tax rate is 25%.
PLEASE SHOW ALL WORK AND FORMULAS
a.What is the Year-0 cash flow?
b.What are the cash flows in Years 1, 2, and 3?
c.What is the additional (nonoperating) cash flow in Year 3?
d.If the project’s cost of capital is 10%, should the chromatograph be purchased?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of...
The president of your company, MorChuck Enterprises, has asked
you to evaluate the proposed acquisition of a new chromatograph for
the firm's R&D department. The equipment's basic price is
$64,000, and it would cost another $17,000 to modify it for special
use by your firm. The chromatograph, which falls into the MACRS
3-year class, would be sold after 3 years for $26,900. The MACRS
rates for the first three years are 0.3333, 0.4445 and 0.1481.
(Ignore the half-year convention for...
The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of...
The president of your company, MorChuck Enterprises, has asked
you to evaluate the proposed acquisition of a new chromatograph for
the firm's R&D department. The equipment's basic price is
$69,000, and it would cost another $18,000 to modify it for special
use by your firm. The chromatograph, which falls into the MACRS
3-year class, would be sold after 3 years for $28,000. The MACRS
rates for the first three years are 0.3333, 0.4445 and 0.1481.
(Ignore the half-year convention for...
New-Project Analysis The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed...
New-Project Analysis
The president of your company, MorChuck Enterprises, has asked
you to evaluate the proposed acquisition of a new chromatograph for
the firm's R&D department. The equipment's basic price is
$78,000, and it would cost another $14,000 to modify it for special
use by your firm. The chromatograph, which falls into the MACRS
3-year class, would be sold after 3 years for $34,900. The MACRS
rates for the first three years are 0.3333, 0.4445 and 0.1481.
(Ignore the half-year...
New-Project Analysis The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed...
New-Project Analysis
The president of your company, MorChuck Enterprises, has asked
you to evaluate the proposed acquisition of a new chromatograph for
the firm's R&D department. The equipment's basic price is
$64,000, and it would cost another $19,500 to modify it for special
use by your firm. The chromatograph, which falls into the MACRS
3-year class, would be sold after 3 years for $27,500. The MACRS
rates for the first three years are 0.3333, 0.4445 and 0.1481.
(Ignore the half-year...
New-Project Analysis The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed...
New-Project Analysis The president of your company, MorChuck
Enterprises, has asked you to evaluate the proposed acquisition of
a new chromatograph for the firm's R&D department. The
equipment's basic price is $80,000, and it would cost another
$16,500 to modify it for special use by your firm. The
chromatograph, which falls into the MACRS 3-year class, would be
sold after 3 years for $30,700. The MACRS rates for the first three
years are 0.3333, 0.4445 and 0.1481. (Ignore the half-year...
New-Project Analysis The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed...
New-Project Analysis
The president of your company, MorChuck Enterprises, has asked
you to evaluate the proposed acquisition of a new chromatograph for
the firm's R&D department. The equipment's basic price is
$70,000, and it would cost another $18,500 to modify it for special
use by your firm. The chromatograph, which falls into the MACRS
3-year class, would be sold after 3 years for $32,100. The MACRS
rates for the first three years are 0.3333, 0.4445 and 0.1481.
(Ignore the half-year...
The president of the company you work for has asked you to evaluate the proposed acquisition...
The president of the company you work for has asked you to
evaluate the proposed acquisition of a new chromatograph for the
firm’s R&D department. The equipment's basic price is $80,000,
and it would cost another $16,000 to modify it for special use by
your firm. The chromatograph, which falls into the MACRS 3-year
class, would be sold after 3 years for $33,700. The MACRS rates for
the first 3 years are 0.3333, 0.4445 and 0.1481. Use of the
equipment...
The president of the company you work for has asked you to evaluate the proposed acquisition...
The president of the company you work for has asked you to
evaluate the proposed acquisition of a new chromatograph for the
firm’s R&D department. It will be a 4-year project.
The equipment’s basic price is $70,000, and it would cost
another $15,000 to modify it for special use by your firm.
Use of the equipment would require an increase in net operating
working capital (spare parts inventory) of $4,000.
The machine would have no effect on revenues, but it...
The president of the company you work for has asked you to evaluate the proposed acquisition...
The president of the company you work for has asked you to
evaluate the proposed acquisition of a new chromatograph for the
firm’s R&D department. The equipment's basic price is $67,000,
and it would cost another $17,500 to modify it for special use by
your firm. The chromatograph, which falls into the MACRS 3-year
class, would be sold after 3 years for $30,300. The MACRS rates for
the first 3 years are 0.3333, 0.4445 and 0.1481. Use of the
equipment...
The president of the company you work for has asked you to evaluate the proposed acquisition...
The president of the company you work for has asked you to
evaluate the proposed acquisition of a new chromatograph for the
firm’s R&D department. The equipment's basic price is $79,000,
and it would cost another $20,000 to modify it for special use by
your firm. The chromatograph, which falls into the MACRS 3-year
class, would be sold after 3 years for $29,900. The MACRS rates for
the first 3 years are 0.3333, 0.4445 and 0.1481. Use of the
equipment...
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