Question
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 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 $98,017, and it would cost another $10,891 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 $39,207. 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 $5,763. The machine would have no effect on revenues, but it is expected to save the firm $42,378 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 21.0% and its cost of capital is 14.0%. How much is the salvage value cash flow for the machinery at the end of project's life?
- $29,486
- $32,668
- $27,062
- $25,265
- $37,089
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