You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $150,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $29,000. 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 $50,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%.

What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.
$
What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.
Year 1: $
Year 2: $
Year 3: $
If the WACC is 13%, should the spectrometer be purchased?
-Select-YesNo

Expert Solution

jeff jeffy answered 2 years ago

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $140,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $57,000. The equipment would require a $13,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $23,000 per year in before-tax labor...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $210,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $44,000. 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 $40,000 per year in before-tax labor...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $70,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $30,000. The equipment would require a $12,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $53,000 per year in before-tax labor...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $220,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $84,000. The equipment would require an $11,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $54,000 per year in before-tax labor...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $160,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $55,000. The equipment would require an $11,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $54,000 per year in before-tax labor...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $160,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $56,000. The equipment would require a $14,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $38,000 per year in before-tax labor...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $250,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $62,000. The equipment would require an $11,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $28,000 per year in before-tax labor...

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...

Question

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

Solutions

Expert Solution

Related Solutions

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...

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...

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...