Question

In: Finance

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 $180,000, and it would cost another $45,000 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 $63,000. The MACRS rates for the first 3 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 $10,800. The machine would have no effect on revenues, but it is expected to save the firm $54,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 35%.

  1. What is the Year 0 net cash flow? If the answer is negative, use parentheses.
    $
  2. What are the net operating 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 $
  3. What is the additional (nonoperating) cash flow in Year 3? Do not round intermediate calculations. Round your answer to the nearest dollar.
    $
  4. If the project's cost of capital is 12%, should the chromatograph be purchased?
    -Yes or No

Solutions

Expert Solution


Related Solutions

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...
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 $200,000, and it would cost another $50,000 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 $90,000. 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 $85,000, and it would cost another $12,000 to install it for special use by your firm. The chromatograph falls into the MACRS 3-year class, and the MACRS rates are 0.3333, 0.4445, 0.1481, and 0.0741. The firm would keep the machine for its entire useful life (that is 4 years), and...
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 $160,000, and it would cost another $24,000 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 $72,000. 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 $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...
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 $90,000, and it would cost another $13,500 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 $40,500. The MACRS rates for the first 3 years are 0.3333, 0.4445 and 0.1481. Use of the equipment...
The VP of the company you work for has asked you to evaluate the proposed acquisition...
The VP 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 $90,000, and it would cost another $13,500 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 $22,500. The MACRS rates for the first 3 years are 0.3333, 0.4445 and 0.1481. Use of the equipment...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT