You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of thespectrometer including modifications is $180,000, and the equipment will be fully depreciated at the time of purchase. Theequipment would be sold after 3 years for $49,000. The equipment would require a $15,000 increase in net operatingworking capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $37,000per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%.a. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is theYear 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.$b. What are the project's annual cash flows in Years 1, 2, and 37 Do not round intermediate calculations. Round youranswers to the nearest dollar.Year 1: $Year 2: $Year 3: $*

The initial outlay of funds or startup costs associated with launching a new enterprise or buying an…

Answered: You must evaluate the purchase of a…

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

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You have been asked to evaluate the proposed acquisition of a new Machine for your company. The machine’s basic price is $100,000. Assume that the machine can be depreciated using straight line over three years. The Machine would require an increase in net working capital (spare parts inventory) of $4,000 at the start of the project. This working capital will be recovered at Year 3. The machine would have no effect on revenues, but it is expected to save the firm $40,000 per year in before tax operating costs. This machine will help the firm reduce its labor costs. Assume that the firm’s marginal tax rate is 35%. a) If the cost of capital (WACC) is 10% , should the machine be purchased? Show all your work in the attached excel file. b) What is the minimum cost savings required to justify the purchase of this machine? Click here to get the Excel Template for this problem. (I attached a picture) Please upload your completed excel file.
You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $210,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $91,000. The equipment would require a $9,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $26,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.$ 2.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 dollar.Year 1: $ Year 2: $ Year 3: $
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $680,000. The asset qualifies for 100 percent bonus depreciation and can be scrapped for $90,000 at the end of the project’s 5-year life. The sausage system will save the firm $193,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $45,000. If the tax rate is 25 percent and the discount rate is 9 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Joanette, Incorporated, is considering the purchase of a machine that would cost $430,000 and would last for 5 years, at the end of which, the machine would have a salvage value of $43,000. The machine would reduce labor and other costs by $103,000 per year. Additional working capital of $5,000 would be needed immediately, all of which would be recovered at the end of 5 years. The company requires a minimum pretax return of 16% on all investment projects. (Ignore income taxes.) Click here to view Exhibit 148-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided Required: Determine the not present value of the project. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar amount.) Net present value
You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $100,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $28,000. The equipment would require a $12,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $22,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar. 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 dollar.
Eggz, Incorporated, is considering the purchase of new equipment that will allow the company to collect loose hen feathers for sale. The equipment will cost $490,000 and will be eligible for 100 percent bonus depreciation. The equipment can be sold for $84,000 at the end of the project in 5 years. Sales would be $327,000 per year, with annual fixed costs of $60,000 and variable costs equal to 35 percent of sales. The project would require an investment of $51,000 in NWC that would be returned at the end of the project. The tax rate is 23 percent and the required return is 8 percent. Calculate the NPV of this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV 348437.32
You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $162,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $111,000. The machine would require a $9,000 increase in net operating working capital (increased Inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $42,000 per year. The marginal tax rate is 25%, and the WACC is 11%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. a. How should the $4,500 spent last year be handled? 1. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay. II. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow.…
You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $290,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $48,000. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $33,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.$ 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 dollar.Year 1: $ Year 2: $ Year 3: $ If the WACC is 12%, should the spectrometer be…
Nikul
The management of Truelove Corporation is considering a project that would require an initial investment of $357,030 and would last for 7 years. The annual net operating income from the project would be $29,800, including depreciation of $46,890. At the end of the project, the scrap value of the project's assets would be $28,800 (Ignore income taxes.): Required: Determine the payback period of the project. (Round your answer to 2 decimal places.) Payback period years
I got this wrong.
An elective project is currently under review. It requires an initial investment of $116,000 for equipment. The profit is expected to be $28,000 each year, over the 6-year project period. The salvage value of the equipment at the end of the project period is projected to be $22,000. Assume a MARR of 10%. Find an IRR for this project.

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