Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $150,000, and it would cost another $30,000 to

image text in transcribed

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $150,000, and it would cost another $30,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $52,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $10,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $35,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet a. What is the initial investment outlay for the spectrometer, that is, what is the Year O project cash flow? Round your answer to the nearest cent. Negative amount should be indicated by a minus sign. $ b. What are the project's annual cash flows in Years 1, 2, and 3? Round your answers to the nearest cent. In Year 1 $ In Year 2 $ In Year 3 $ C. If the WACC is 13%, should the spectrometer be purchased

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Professionals Handbook Of Financial Risk Management

Authors: Lev Borodovsky, Marc Lore

1st Edition

0750641118, 978-0750641111

More Books

Students also viewed these Finance questions