New-Project Analysis The president of the company you work for has asked you to evaluate the...

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New-Project Analysis The president of the company you work forhas asked you to evaluate the proposed acquisition of a newchromatograph for the firm’s R&D department The equipment'sbasic price is $60,000, and it would cost another $9,000 to modifyit for special use by your firm. The chromatograph, which fallsinto the MACRS 3-year class, would be sold after 3 years for$15,000. Use of the equipment would require an increase in networking capital (spare parts inventory) of $3,600. The machinewould have no effect on revenues, but it is expected to save thefirm $24,000 per year in before-tax operating costs, mainly labor.The firm's marginal federal-plus-state tax rate is 35%. What is theYear-0 net cash flow? If the answer is negative, use minus sign.$
What are the net operating cash flows in Years 1, 2, and 3?Round your answers to the nearest dollar. Year 1 $ Year 2 $ Year 3$
What is the additional (nonoperating) cash flow in Year 3? Roundyour answer to the nearest dollar. $
If the project's cost of capital is 13%, should thechromatograph be purchased?

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3.8 Ratings (620 Votes)

Initial Investment Base Price Modification Cost Initial Investment 60000 9000 Initial Investment 69000 Useful Life 3 years Depreciation Year 1 33 69000 Depreciation Year 1 22770 Depreciation Year 2 45 69000 Depreciation Year 2 31050 Depreciation Year 3 15 69000 Depreciation See Answer

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New-Project Analysis The president of the company you work forhas asked you to evaluate the proposed acquisition of a newchromatograph for the firm’s R&D department The equipment'sbasic price is $60,000, and it would cost another $9,000 to modifyit for special use by your firm. The chromatograph, which fallsinto the MACRS 3-year class, would be sold after 3 years for$15,000. Use of the equipment would require an increase in networking capital (spare parts inventory) of $3,600. The machinewould have no effect on revenues, but it is expected to save thefirm $24,000 per year in before-tax operating costs, mainly labor.The firm's marginal federal-plus-state tax rate is 35%. What is theYear-0 net cash flow? If the answer is negative, use minus sign.$What are the net operating cash flows in Years 1, 2, and 3?Round your answers to the nearest dollar. Year 1 $ Year 2 $ Year 3$What is the additional (nonoperating) cash flow in Year 3? Roundyour answer to the nearest dollar. $If the project's cost of capital is 13%, should thechromatograph be purchased?