Excel Online Structured Activity: New project analysis

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $

$1$

$7$

$0$

$,$

$0$

$0$

$0$

$,$

$$and it would cost another $

$4$

$2$

$,$

$5$

$0$

$0$

$$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 $

$6$

$8$

$,$

$0$

$0$

$0$

$.$

$$The applicable depreciation rates are

$3$

$3$

$\%$

$,$

$4$

$5$

$\%$

$,$

$1$

$5$

$\%$

$,$

$$and

$7$

$\%$

$.$

$$The equipment would require an $

$1$

$3$

$,$

$0$

$0$

$0$

$$increase in net operating working capital

$($

spare parts inventory

$)$

$.$

$$The project would have no effect on revenues, but it should save the firm $

$7$

$4$

$,$

$0$

$0$

$0$

$$per year in before

$-$

tax labor costs. The firm's marginal federal

$-$

plus

$-$

state tax rate is

$4$

$0$

$\%$

$.$

$$The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

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.

$ fill in the blank

$2$

What are the project's annual cash flows in Years

$1$

$,$

$2$

$,$

$$and

$3$

$?$

$$Round your answers to the nearest cent.

In Year

$1$

$$$ fill in the blank

$3$

In Year

$2$

$$$ fill in the blank

$4$

In Year

$3$

$$$ fill in the blank

$5$

If the WACC is

$1$

$0$

$\%$

$,$

$$should the spectrometer be purchased? Base price $$170,000$

Additional modification costs $$42,500$

Before$-$tax salvage proceeds $$68,000$

Change in NOWC $$13,000$

Before$-$tax labor cost savings $$74,000$

WACC $10\mathrm{.}00\%$

Tax rate $40\mathrm{.}00\%$

Yr$.0$ Yr$.1$ Yr$.2$ Yr$.3$

Depreciation rates $0\mathrm{.}330\mathrm{.}450\mathrm{.}15$

Yr$.0$ Yr$.1$ Yr$.2$ Yr$.3$

Base price

Modification costs

NOWC

Before$-$tax labor cost savings $$74,000\mathrm{.}00$ $$74,000\mathrm{.}00$ $$74,000\mathrm{.}00$

Depreciation

Operating income

Taxes

After$-$tax operating income

Add back depreciation $$0\mathrm{.}00$ $$0\mathrm{.}00$ $$0\mathrm{.}00$

Operating cash flows

Termination cash flows

Before$-$tax salvage proceeds $$68,000\mathrm{.}00$

Tax on salvage value

NOWC recapture $$13,000\mathrm{.}00$

Project cash flows

NPV

Project acceptance?

Formulas

Yr$.0$ Yr$.1$ Yr$.2$ Yr$.3$

Base price #N$/$A

Modification costs #N$/$A

NOWC #N$/$A

Before$-$tax labor cost savings $$74,000\mathrm{.}00$ $$74,000\mathrm{.}00$ $$74,000\mathrm{.}00$

Depreciation #N$/$A #N$/$A #N$/$A

Operating income #N$/$A #N$/$A #N$/$A

Taxes #N$/$A #N$/$A #N$/$A

After$-$tax operating income #N$/$A #N$/$A #N$/$A

Add back depreciation #N$/$A #N$/$A #N$/$A

Operating cash flows #N$/$A #N$/$A #N$/$A

Termination cash flows

Before$-$tax salvage proceeds $$68,000\mathrm{.}00$

Tax on salvage value #N$/$A

NOWC recapture $$13,000\mathrm{.}00$

Project cash flows #N$/$A #N$/$A #N$/$A #N$/$A

NPV #N$/$A

Project acceptance? #N$/$A