The VP of the company you work for has asked you to evaluate the proposed acquisition...
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The VP of the company you work for has asked you to evaluate theproposed acquisition of a new chromatograph for the firm’s R&Ddepartment. The equipment's basic price is $90,000, and it wouldcost another $13,500 to modify it for special use by your firm. Thechromatograph, which falls into the MACRS 3-year class, would besold after 3 years for $22,500. 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 $3,600. The machine would have no effect on revenues, but it isexpected to save the firm $27,000 per year in before-tax operatingcosts, mainly labor. The firm's marginal federal-plus-state taxrate is 40%.
a. What is the Year 0 net cash flow? If the answer is negative,use parentheses.
b. What are the net operating cash flows in Years 1, 2, and 3?Do not round intermediate calculations. Round your answers to thenearest 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.
The VP of the company you work for has asked you to evaluate theproposed acquisition of a new chromatograph for the firm’s R&Ddepartment. The equipment's basic price is $90,000, and it wouldcost another $13,500 to modify it for special use by your firm. Thechromatograph, which falls into the MACRS 3-year class, would besold after 3 years for $22,500. 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 $3,600. The machine would have no effect on revenues, but it isexpected to save the firm $27,000 per year in before-tax operatingcosts, mainly labor. The firm's marginal federal-plus-state taxrate is 40%.
a. What is the Year 0 net cash flow? If the answer is negative,use parentheses.
b. What are the net operating cash flows in Years 1, 2, and 3?Do not round intermediate calculations. Round your answers to thenearest 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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