Question

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $170,000, and it would cost another $34,000 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 $59,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require a $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 $66,000 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 $

In Year 3 $

- If the WACC is 11%, should the spectrometer be purchased?

-Select-YesNo

Answer #1

You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $180,000, and it would
cost another $27,000 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 $81,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $5,000
increase in net operating working capital (spare parts inventory).
The project would have...

You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $280,000, and it would
cost another $42,000 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 $140,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $14,000
increase in net operating working capital (spare parts inventory).
The project would have...

You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $60,000, and it would
cost another $15,000 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 $27,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require an $11,000
increase in net operating working capital (spare parts inventory).
The project would have...

You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $60,000, and it would
cost another $9,000 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 $30,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require an $14,000
increase in net operating working capital (spare parts inventory).
The project would have...

You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $110,000, and it would
cost another $22,000 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 $27,500. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $11,000
increase in net operating working capital (spare parts inventory).
The project would have...

You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $90,000, and it would
cost another $13,500 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 $40,500. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $9,000
increase in net operating working capital (spare parts inventory).
The project would have...

You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $170,000, and it would
cost another $42,500 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 $85,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require an $6,000
increase in net operating working capital (spare parts inventory).
The project would have...

You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $200,000, and it would
cost another $40,000 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 $100,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $5,000
increase in net operating working capital (spare parts inventory).
The project would have...

You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $240,000, and it would
cost another $60,000 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 $120,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $10,000
increase in net operating working capital (spare parts inventory).
The project would have...

You must evaluate the purchase of a proposed spectrometer for
the R&D department. The base price is $230,000, and it would
cost another $57,500 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 $115,000. The applicable depreciation rates
are 33%, 45%, 15%, and 7%. The equipment would require a $12,000
increase in net operating working capital (spare parts inventory).
The project would have...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 6 minutes ago

asked 13 minutes ago

asked 17 minutes ago

asked 18 minutes ago

asked 29 minutes ago

asked 31 minutes ago

asked 39 minutes ago

asked 53 minutes ago

asked 56 minutes ago

asked 56 minutes ago

asked 1 hour ago

asked 1 hour ago