New Project Analysis

You have been asked by the president of your company to evaluate the proposed encyclopaedism of a new spectrometer for the firms R&D department. The equipments basic price is $70,000, and it would cost another(prenominal) $15,000 to characterize it for special use by your firm. The spectrometer, which falls into the MACRS 3-year class, would be change after 3 years for $30,000. Use of the equipment would supplicate an affix in net working peachy (sp be sepa rove inventory) of $4,000. The spectrometer would have no effect on revenues, besides it is judge to save the firm $25,000 per year in before-tax in operation(p) costs, principally labor. The firms marginal federal-plus-state tax rate is 40%. a.What is the net cost of the spectrometer? (That is, what is the course of study-0 net bills flow?) b.What are the net operating silver flows in years 1, 2, and 3? c.What is the additional (nonoperating) cash flow in Year 3? d.If the projects cost of capital is 10%, should the spectrometer be purchased? a. Net Cost (Year 0 net cash flow) = -$89.000 Net Cost= gold Outflows = determine + Modification + increment in Working Capital =(-70,000) + (-15,000) + (-4,000) =-89,000 b.

Net operational exchange Flow Year 1 = $26,220 Net operational hard currency Flow Year 2 = $30,300 Net operational Cash Flow Year 3 = $20,100 wear and tear disbursal Year 1=(basis)(MARCS allowance) =(price + modification)(MARCS allowance) =(70,000 + 15,000)(0.33) =(85,000)(0.33) =28,050 Depreciation expense Year 2=(basis)(MARCS allowance) =(price + modification)(MARCS allowance) =(70,000 + 15,000)(0.45) =(85,000)(0.45) =38,250 Depr eciation expense Year 3=(basis)(MARCS allowa! nce) =(price + modification)(MARCS allowance) =(70,000 + 15,000)(0.15) =(85,000)(0.15) =12,750 Net Op CF Year 1=[after-tax cost savings] + [depreciation shield] =[annual savings(1 tax rate)] + [depreciation expense(tax rate)] =(25,000)(1 ...If you want to thread a full essay, order it on our website: OrderEssay.net

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