Financial Accounting Orion Technologies already spent $95,000 on a feasibility study for a specializedrobotic system. The system will cost $3,100,000, and required modifications will cost$450,000. Orion Technologies will also need to invest $100,000 in additionalinventory. The system has an IRS-approved useful life of 8 years, but it will be usedfor 5 years and then sold for $750,000.What is the total investment amount required for the project?

Step 1: Definition of Total Investment AmountThe Total Investment Amount refers to the total cost…

Answered: Orion Technologies already spent…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
A proposed cost-saving device has an installed cost of $785,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $75,000, the tax rate is 25 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $115,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
A proposed cost-saving device has an installed cost of $905,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $65,000, the tax rate is 22 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $125,000. What level of pretax cost savings do we require for this project to be profitable? (MACRS schedule) Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Required cost savings
A proposed cost-saving device has an installed cost of $795,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $79,000, the tax rate is 22 percent, and the project discount rate is 11 percent. The device has an estimated Year 5 salvage value of $121,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Answer is complete but not entirely correct. Pretax cost savings $ 194.191.50 X
A proposed cost-saving device has an installed cost of $795,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $79,000, the tax rate is 22 percent, and the project discount rate is 11 percent. The device has an estimated Year 5 salvage value of $121,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. X Answer is complete but not entirely correct. Pretax cost savings 194,191.50 X $
A proposed cost-saving device has an installed cost of $765,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $67,000, the tax rate is 21 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $103,000. What level of pretax cost savings do we require for this project to be profitable?
A proposed cost-saving device has an installed cost of $825,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes (MACRS schedule). The required initial net working capital investment is $91,000, the tax rate is 23 percent, and the project discount rate is 9 percent. The device has an estimated Year 5 salvage value of $139,000. What level of pretax cost savings do we require for this project to be profitable? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Pretax cost savings
A proposed cost-saving device has an installed cost of $835,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $95,000, the tax rate is 25 percent, and the project discount rate is 11 percent. The device has an estimated Year 5 salvage value of $145,000. What level of pretax cost savings do we require for this project to be profitable? MACRS schedule (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $130,000, and it would cost another $19,500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $45,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $72,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest cent.Year 1: $
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $130,000, and it would cost another $19,500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $45,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $72,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. If the WACC is 13%, should the spectrometer be purchased?
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $130,000, and it would cost another $19,500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $45,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $72,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest cent.
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $150,000, and it would cost another $22, 500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $52, 500. The applicable depreciation rates are 33%, 45% , 15%, and 7%. The equipment would require a $13, 000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $30,000 per year in before - tax labor costs. The firm's marginal 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 to the nearest cent. Negative amount should be indicated by a minus sign. $ 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…

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