Ogren Corporation is considering purchasing a new spectrometer for the firm's R&D department. The purchase price is $70,000 and it would cost another $15,000 to install it. The spectrometer which falls into the MACRS 3-year property class (Year 1-33.33%, Year 2- 44.44%, Year 3 - 14.82%, and Year 4 - 7.41%) is projected to be sold after three years for $30,000. Use of this equipment would result in an increased net working capital of $4,000 over the life of the machine. The spectrometer would have no effect on revenues, but it is expected to save the firm $35,000 per year in before-tax operating costs, mainly labor. The firm's tax rate is 40%, and the required rate of return on the project is 11%. What is the after-tax salvage value for the spectrometer?
Ogren Corporation is considering purchasing a new spectrometer for the firm's R&D department. The purchase price is $70,000 and it would cost another $15,000 to install it. The spectrometer which falls into the MACRS 3-year property class (Year 1-33.33%, Year 2- 44.44%, Year 3 - 14.82%, and Year 4 - 7.41%) is projected to be sold after three years for $30,000. Use of this equipment would result in an increased net working capital of $4,000 over the life of the machine. The spectrometer would have no effect on revenues, but it is expected to save the firm $35,000 per year in before-tax operating costs, mainly labor. The firm's tax rate is 40%, and the required rate of return on the project is 11%. What is the after-tax salvage value for the spectrometer?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 14P
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