have been asked by the president of your company to evaluate the proposed acquisition of a spectrometer for the firm’s R&D department. The equipment’s base price is $140,000, and it would cost another $30,000 to modify it for special use by your firm. The spectrometer, which falls into the MACRS 3-year class, would be sold after 3 years for an expected salvage value of $60,000. Use of the equipment would require an increase in spare parts inventory of $8,000. The spectrometer is expected to save the firm $80,000 per year in before-tax operating costs (i.e. effectively, there is an $80,000 cash inflow each year, excluding depreciation and tax effects). The firm’s marginal tax rate is 40%, and the cost of capital is 12%. Evaluate this decision using the NPV decision criteria. Should the firm buy the spectrometer? A) Yes, the project yields an NPV of $23,684.31 B) Yes, the project yields an NPV of $25,390.45 C) Yes, the project yields an NPV of $24,599.59 D) No, the project yields an NPV of ($2,352.28) *Please show all excel how to get this.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
icon
Concept explainers
Topic Video
Question
100%

You have been asked by the president of your company to evaluate the proposed acquisition of a spectrometer for the firm’s R&D department. The equipment’s base price is $140,000, and it would cost another $30,000 to modify it for special use by your firm. The spectrometer, which falls into the MACRS 3-year class, would be sold after 3 years for an expected salvage value of $60,000. Use of the equipment would require an increase in spare parts inventory of $8,000. The spectrometer is expected to save the firm $80,000 per year in before-tax operating costs (i.e. effectively, there is an $80,000 cash inflow each year, excluding depreciation and tax effects). The firm’s marginal tax rate is 40%, and the cost of capital is 12%. Evaluate this decision using the NPV decision criteria. Should the firm buy the spectrometer?

A) Yes, the project yields an NPV of $23,684.31
B) Yes, the project yields an NPV of $25,390.45
C) Yes, the project yields an NPV of $24,599.59
D) No, the project yields an NPV of ($2,352.28)

*Please show all excel how to get this.

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Capital Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education