New-Project Analysis The president of your company, MorChuck Enterprises, has asked you to evaluate the...
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New-Project Analysis The president of your company, MorChuck Enterprises, 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 $74,000, and it would cost another $15,500 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 $26,400. The MACRS rates for the first three years are 0.3333, 0.4445 and 0.1481. (Ignore the half-year convention for the straight-line method.) Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,240. The machine would have no effect on revenues, but it is expected to save the firm $24,220.
What is the Year-0 net cash flow?
$
What are the net operating cash flows in Years 1, 2, and 3? (Note: 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 (nonoperating) cash flow in Year 3?
$
If the project's cost of capital is 11%, what is the NPV of the project?
$
Should the chromatograph be purchased?
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