You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...

90.2K

Verified Solution

Question

Finance

You must evaluate the purchase of a proposed spectrometer forthe R&D department. The base price is $240,000, and it wouldcost another $36,000 to modify the equipment for special use by thefirm. The equipment falls into the MACRS 3-year class and would besold after 3 years for $60,000. The applicable depreciation ratesare 33%, 45%, 15%, and 7%. The equipment would require a $15,000increase in net operating working capital (spare parts inventory).The project would have no effect on revenues, but it should savethe firm $70,000 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. Negative amount should be indicated by a minussign.
$
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

Answer & Explanation Solved by verified expert

4.5 Ratings (871 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

You must evaluate the purchase of a proposed spectrometer forthe R&D department. The base price is $240,000, and it wouldcost another $36,000 to modify the equipment for special use by thefirm. The equipment falls into the MACRS 3-year class and would besold after 3 years for $60,000. The applicable depreciation ratesare 33%, 45%, 15%, and 7%. The equipment would require a $15,000increase in net operating working capital (spare parts inventory).The project would have no effect on revenues, but it should savethe firm $70,000 per year in before-tax labor costs. The firm'smarginal federal-plus-state tax rate is 40%.What is the initial investment outlay for the spectrometer,that is, what is the Year 0 project cash flow? Round your answer tothe nearest cent. Negative amount should be indicated by a minussign.$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