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 modify it for special use by your firm. The spectrometer, which falls into the MACRS 3-year class, would be sold after 3 years for $30,000. Use of the equipment would supplicate an increase in net working peachy (spare sepa rove inventory) of $4,000. The spectrometer would have no effect on revenues, besides it is expected to save the firm $25,000 per year in before-tax in operation(p) costs, mainly 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 Year-0 net bills flow?)
b.What are the net operating cash 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=Cash Outflows
= determine + Modification + Increase in Working Capital
=(-70,000) + (-15,000) + (-4,000)
=-89,000



b.



Net operational Cash Flow Year 1 = $26,220
Net operational Cash Flow Year 2 = $30,300
Net operational Cash Flow Year 3 = $20,100

Depreciation 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




Depreciation expense Year 3=(basis)(MARCS allowance)
=(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



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