New-Project AnalysisThe president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of a new chromatograph for the firm's R&Ddepartment. The equipment's basic price is $75,000, and it would cost another $16,000 to modify it for special use by your firm. The chromatograph, which fallsinto the MACRS 3-year class, would be sold after 3 years for $26,800. The MACRS rates for the first three years are 0.3333, 0.4445 and 0.1481. Use of theequipment would require an increase in net working capital (spare parts inventory) of $4,300. The machine would have no effect on revenues, but it is expectedto save the firm $23,050 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 25%. Cash outflows and negativeNPV value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.a. What is the Year-0 net cash flow?$b. What are the project recurring cash flows in Years 1, 2, and 37Year 1:Year 2:Year 3:$C. What is the additional (nonoperating) cash flow In Year 37$$d. If the project's cost of capital is 12%, what is the NPV of the project?$Should the chromatograph be purchased?-Select-Check My Work (1 remaining)

Net Present Value (NPV) is used to evaluate the profitability of an investment or project and it…

Answered: The president of your company, MorChuck…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 7P

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New-Project Analysis The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of a new chromatograph for the firm's R&D department. The equipment's basic price is $63,000, and it would cost another $19,500 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $26,800. The MACRS rates for the first three years are 0.3333, 0.4445 and 0.1481. (Ignore the half-year convention for the straight-line method.) Use of the equipment would require an increase in net working capital (spare parts inventory) of $2,320. The machine would have no effect on revenues, but it is expected to save the firm $19,960 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 25%. Cash outflows and negative NPV value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest…
New-Project Analysis The president of MorChuck Enterprises has asked you to evaluate the proposed acquisition of a new chromatograph for the firm’s R&D department. The equipment’s basic price is $70,000, and it would cost another $15,000 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $30,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The machine would have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm’s marginal federal-plus-state tax rate is 25%. a. What is the Year-0 cash flow? b. What are the project recurring cash flows in Years 1, 2, and 3? c. What is the additional (non operating) cash flow in Year 3? d. If the project’s cost of capital is 10%, should the…
New-Project Analysis The president of MorChuck Enterprises has asked you to evaluate the proposed acquisition of a new chromatograph for the firm’s R&D department. The equipment’s basic price is $70,000, and it would cost another $15,000 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $30,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The machine would have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm’s marginal federal-plus-state tax rate is 25%. a. What is the Year-0 cash flow? b. What are the project recurring cash flows in Years 1, 2, and 3? c. What is the additional (non operating) cash flow in Year 3? d. If the project’s cost of capital is 10%, should the…
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