You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $80,000, and it would cost another $12,000 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 $28,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $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 $52,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. a. 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. 24 b. 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: $ Year 2: $ Year 3: $ c. If the WACC is 11%, should the spectrometer be purchased? -Select- v

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $80,000, and it would cost another $12,000 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 $28,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $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 $52,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. a. 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. 24 b. 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: $ Year 2: $ Year 3: $ c. If the WACC is 11%, should the spectrometer be purchased? -Select- v

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 must evaluate the purchase of a spectrometer for the R&D department. The base price is $140,000, and it would cost another $30,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 4 year class and would be sold after 4 years for $60,000. The applicable depreciation rates are 33%, 45%, 15% and 7%. The equipment would require an $8000 increase in net operating working capital. The project would have no effect on revenues, but it should save the firm $50,000 per year before-tax labour costs. The firm's marginal federal-plus state tax rate is 40%. QUESTION: If the WACC is 12%, should the spectrometer be purchased? Explain.
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A firm is considering investing in a new piece of equipment. The equipment would cost $500,000 and would have shipping and installation cost of $125,000. If purchased, the machine would have an estimated useful life of 5 years and would be depreciated via a 5-year MACRS schedule (e, 20.0%, 32.0%, 19.2 %, 11.5%, 11.5%, and 5.8%). Adoption of the project would also require an increase in working capital of $50,000. If the new equipment is purchased, an old piece of equipment (which is still useable for 5 more years) could be sold for $30,000. The old machine had been depreciated on a straight line basis and currently has a book value of zero. The machine would generate annual incremental revenues of $250,000 and annual incremental expenses of $50,000. It is estimated that the machine can be sold as scrap at the end of its 5 year useful life for $80,000. The required return on projects of this nature is 14% and the firm's marginal tax rate is 40%. What is cash flow from the project for…
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You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $120,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $24,000. 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 $64,000 per 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 the Year 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 3? Do not round intermediate calculations. Round your answers to the nearest dollar. Year 1: $ Year 2: $ Year 3: $ c. If the WACC is 11%, should…
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еВook You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $270,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $49,000. 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 $20,000 per 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 the Year 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 3? Do not round intermediate calculations. Round your answers to the nearest dollar. Year 1: $ Year 2: $ Year 3: $ c. If the WACC is 12%,…
You must evaluate a proposal to buy a new milling machine. The base price is $101,000, and shipping and installation costs would add another $12,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $45,450. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $4,500 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 $52,000 per year. The marginal tax rate is 35%, and the WACC is 11%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest cent.$ What are the project's annual cash flows during Years 1, 2, and 3? Do not round intermediate calculations.…
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You are evaluating the proposed acquisition of a new machine costing $57,000, and it falls into the MACRS 3-year class. Purchase of the machine would require an increase of net operating working capital of $4,000, which will be recovered when the machine is sold. The machine would increase the firm's revenues by $30,000 per year and its operating costs by $17,000 per year. The machine is expected to be used only for 3 years and then be sold for $25,000. The firm's marginal tax rate is 27 percent, and the project's cost of capital is 14 percent. What is the non-operating terminal cash flows at year 3? MACRS 3-year schedule is as follows: 33%, 45%, 15%, and 7% for years 1 to 4, respectively. Question 13 options: $22,267 $22,587 $22,907 $23,097 $23,327 $23,607

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