Problem 11-07 New-Project Analysis The president of the company you work for has asked you to...

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Problem 11-07 New-Project Analysis The president of the companyyou work for has asked you to evaluate the proposed acquisition ofa new chromatograph for the firm’s R&D department. Theequipment's basic price is $200,000, and it would cost another$30,000 to modify it for special use by your firm. Thechromatograph, which falls into the MACRS 3-year class, would besold after 3 years for $50,000. The MACRS rates for the first 3years are 0.3333, 0.4445 and 0.1481. Use of the equipment wouldrequire an increase in net working capital (spare parts inventory)of $8,000. The machine would have no effect on revenues, but it isexpected to save the firm $60,000 per year in before-tax operatingcosts, mainly labor. The firm's marginal federal-plus-state taxrate is 35%. a. What is the Year 0 net cash flow? If the answer isnegative, use minus sign. $ b. What are the net operating cashflows in Years 1, 2, and 3? Do not round intermediate calculations.Round your answers to the nearest dollar. Year 1 $ Year 2 $ Year 3$ c. What is the additional (nonoperating) cash flow in Year 3? Donot round intermediate calculations. Round your answer to thenearest dollar. $

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3.8 Ratings (528 Votes)

Initial Investment Base Price Modification Cost Initial Investment 200000 30000 Initial Investment 230000 Useful Life 3 years Depreciation Year 1 03333 230000 Depreciation Year 1 76659 Depreciation Year 2 04445 230000 Depreciation Year 2 102235 Depreciation See Answer

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Problem 11-07 New-Project Analysis The president of the companyyou work for has asked you to evaluate the proposed acquisition ofa new chromatograph for the firm’s R&D department. Theequipment's basic price is $200,000, and it would cost another$30,000 to modify it for special use by your firm. Thechromatograph, which falls into the MACRS 3-year class, would besold after 3 years for $50,000. The MACRS rates for the first 3years are 0.3333, 0.4445 and 0.1481. Use of the equipment wouldrequire an increase in net working capital (spare parts inventory)of $8,000. The machine would have no effect on revenues, but it isexpected to save the firm $60,000 per year in before-tax operatingcosts, mainly labor. The firm's marginal federal-plus-state taxrate is 35%. a. What is the Year 0 net cash flow? If the answer isnegative, use minus sign. $ b. What are the net operating cashflows in Years 1, 2, and 3? Do not round intermediate calculations.Round your answers to the nearest dollar. Year 1 $ Year 2 $ Year 3$ c. What is the additional (nonoperating) cash flow in Year 3? Donot round intermediate calculations. Round your answer to thenearest dollar. $