The base price of a spectrometer is $140,000, and shipping and installation costs would add another $30,000.
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Question:
The base price of a spectrometer is $140,000, and shipping and installation costs would add another $30,000. The machine falls into the MACRS 3-year class (33%, 45%, 15% and 7%) and it would be sold after 3 years for $60,000.
The machine would require a $8,000 increase in working capital (increased inventory less increased accounts payable).
There would be no effect on revenues, but pre-tax labor costs would decline by $50,000 per year.
The marginal tax rate is 40%, and the WACC is 12%.
- What is the initial investment outlay, that is, the Year 0 project cash flow?
- What are the total cash flows during Years 1, 2, and 3?
- Should the machine be purchased? Explain your answer.
Related Book For
Fundamentals of Financial Management
ISBN: 978-0324302691
11th edition
Authors: Eugene F. Brigham, ? Joel F. Houston
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