Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The president of MorChuck Enterpriser has asked you to evaluate the proposed acquisition of a new chromatograph for the firm's R&D department. The equipment's basic
The president of MorChuck Enterpriser 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 us 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 $4000. 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%. a. What is the Year-0 cash flow? $89,000 b. What are the project recurring cash flows in Years 1,2, and 3? $25,832.63,$28,195.63,$21,897.13 c. What is the additional (nonoperating) cash flows in Year 3? $28,074.63 d. If the project's cost of capital is 10%, should the chromatograph be purchased? $4,669,11
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered 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