Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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 $61,000, 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 $27,000. 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 $2,240. The machine would have no effect on revenues, but it is expected to save the firm $21,150 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 25%. Cash outflows and negative NPV value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. a. What is the Year-O net cash flow? $ b. What are the project recurring cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $ C. What is the additional (nonoperating) cash flow in Year 3? $ d. If the project's cost of capital is 10%, what is the NPV of the project? $ Should the chromatograph be purchased? -Select
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started