Question
The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firms 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 firms R&D department. The equipment's basic price is $68,000, and it would cost another $19,000 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 $27,600. 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 $2,520. The machine would have no effect on revenues, but it is expected to save the firm $23,600 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 40%. 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.
What is the Year-0 net cash flow?
$
What are the net operating cash flows in Years 1, 2, and 3? Do not include recovery of NWC or salvage value in Year 3's calculation here.
Year 1: | $ |
Year 2: | $ |
Year 3: | $ |
What is the additional cash flow in Year 3 from NWC and salvage?
$
If the project's cost of capital is 13%, what is the NPV of the project? .
$
Should the chromatograph be purchased?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started