Question
In: Finance
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
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You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $100,000, and it would cost another $25,000 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 $45,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $5,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $67,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. a - 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 cent. b- hat are the project's annual cash flows in Years 1, 2, and 3?
Do not round intermediate calculations. Round your answers to the
nearest cent. c-If the WACC is 11%, should the spectrometer be purchased? |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
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You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
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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
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You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...
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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...
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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).
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increase in net operating working capital (spare parts inventory).
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