You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price...
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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 $270,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $86,000. The equipment would require an $11,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $25,000 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 13%, should the spectrometer be purchased? 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 $86,000. The equipment would require an $11,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $25,000 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 13%, should the spectrometer be purchased?
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Related Book For
Fundamentals of Financial Management
ISBN: 978-1337395250
15th edition
Authors: Eugene F. Brigham, Joel F. Houston
Posted Date:
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