New project analysis You must evaluate a proposed spectrometer for the R&D department. The base price is...

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New project analysis
You must evaluate a proposed spectrometer for the R&Ddepartment. The base price is $270,000, and it would cost another$54,000 to modify the equipment for special use by the firm. Theequipment falls into the MACRS 3-year class and would be sold after3 years for $108,000. The applicable depreciation rates are 33%,45%, 15%, and 7%. The equipment would require an $12,000 increasein net operating working capital (spare parts inventory). Theproject would have no effect on revenues, but it should save thefirm $75,000 per year in before-tax labor costs. The firm'smarginal federal-plus-state tax rate is 40%.
What is the initial investment outlay for the spectrometer,that is, what is the Year 0 project cash flow? Round your answer tothe nearest cent.
$
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 $
If the WACC is 10%, should the spectrometer be purchased?
-Select-yesnoItem 5

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4.0 Ratings (730 Votes)

Initial Investment Base Price Modification Cost Initial Investment 270000 54000 Initial Investment 324000 Useful Life 3 years Depreciation Year 1 33 324000 Depreciation Year 1 106920 Depreciation Year 2 45 324000 Depreciation Year 2 145800 Depreciation Year 3 15 324000 Depreciation Year 3 48600 Book See Answer

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New project analysisYou must evaluate a proposed spectrometer for the R&Ddepartment. The base price is $270,000, and it would cost another$54,000 to modify the equipment for special use by the firm. Theequipment falls into the MACRS 3-year class and would be sold after3 years for $108,000. The applicable depreciation rates are 33%,45%, 15%, and 7%. The equipment would require an $12,000 increasein net operating working capital (spare parts inventory). Theproject would have no effect on revenues, but it should save thefirm $75,000 per year in before-tax labor costs. The firm'smarginal federal-plus-state tax rate is 40%.What is the initial investment outlay for the spectrometer,that is, what is the Year 0 project cash flow? Round your answer tothe nearest cent.$ 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 $ If the WACC is 10%, should the spectrometer be purchased?-Select-yesnoItem 5