Harbor Medical Corp. is considering the purchase of a piece of diagnostic equipment that costs $380,000....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Harbor Medical Corp. is considering the purchase of a piece of diagnostic equipment that costs $380,000. Shipping and installation costs will be an additional $30,000. Additional spare parts will cause inventory to increase by $10,000 at the beginning of the project. At this same time (Yr=0), accounts payable will increase by $4,000. The equipment will be depreciated based on a 3-year MACRS life. Incremental revenues from the new equipment should be $450,000 in the first year and will increase at 15% per year over the expected 4-year economic life. Incremental cash operating expenses (i.e., not including depreciation) associated with the equipment should be $250,000 the first year and these expenses will increase 10% each year over the project life. The equipment has a working life of 4 years. At the end of 4 years the equipment will be obsolete and can be sold as scrap for $10,000. Assume Harbor Medical Corp. has cost of capital (required rate of return) of 15% and a marginal tax rate of 40%. MACRS depreciation rates for a 3-year asset are as follows: Yr 1: 33% Yr 2: 45% Yr 3: 15% Yr 4: 7% Answer the following questions related to this project. a) Calculate the initial Investment for this project. b) Calculate the Year 1 Operating Cash Flow (or Annual Operating Cash Flow) for this project. (Year 1 cash flow ONLY - not all of the project years). c) As part of the Year 3 Operating Cash Flow, what would be the Change in Revenue for Year 3 for this project? (Only Year 3 Change in Revenue, not entire Yr 3 OCF). [Be sure to label your answers appropriately.] Harbor Medical Corp. is considering the purchase of a piece of diagnostic equipment that costs $380,000. Shipping and installation costs will be an additional $30,000. Additional spare parts will cause inventory to increase by $10,000 at the beginning of the project. At this same time (Yr=0), accounts payable will increase by $4,000. The equipment will be depreciated based on a 3-year MACRS life. Incremental revenues from the new equipment should be $450,000 in the first year and will increase at 15% per year over the expected 4-year economic life. Incremental cash operating expenses (i.e., not including depreciation) associated with the equipment should be $250,000 the first year and these expenses will increase 10% each year over the project life. The equipment has a working life of 4 years. At the end of 4 years the equipment will be obsolete and can be sold as scrap for $10,000. Assume Harbor Medical Corp. has cost of capital (required rate of return) of 15% and a marginal tax rate of 40%. MACRS depreciation rates for a 3-year asset are as follows: Yr 1: 33% Yr 2: 45% Yr 3: 15% Yr 4: 7% Answer the following questions related to this project. a) Calculate the initial Investment for this project. b) Calculate the Year 1 Operating Cash Flow (or Annual Operating Cash Flow) for this project. (Year 1 cash flow ONLY - not all of the project years). c) As part of the Year 3 Operating Cash Flow, what would be the Change in Revenue for Year 3 for this project? (Only Year 3 Change in Revenue, not entire Yr 3 OCF). [Be sure to label your answers appropriately.]
Expert Answer:
Answer rating: 100% (QA)
a To calculate the Initial Investment for this project we need to consider the cost of the equipment shipping and installation costs changes in invent... View the full answer
Related Book For
Financial Analysis with Microsoft Excel
ISBN: 978-1285432274
7th edition
Authors: Timothy R. Mayes, Todd M. Shank
Posted Date:
Students also viewed these finance questions
-
The TLC Yogurt Company has decided to capitalize on the exercise fad and plans to open an exercise facility in conjunction with its main yogurt and health foods store. To get the project under way,...
-
The J. F. Manning Metal Co. is considering the purchase of a new milling machine during year 0. The machine's base price is $135,000. and it will cost another $15,000 to modify it for special use...
-
Write the dual for each of the following primal problems: (a) Maximize z = - 5x1 + 2x2 Subject to - x1 + x2 - 2 2x1 + 3x2 5 X1, x2 0 (b) Minimize z = 6x1 + 3x2 Subject to 6x1 - 3x2 + x3 2 3x1 +...
-
The trade-off theory provides several insights to financial managers concerning optimal capital structure. Explain how an increase in the corporate tax rate would impact capital structure policy.
-
Hanigan Manufacturing had 1,800,000 shares of common stock outstanding as of January 1, 2014, and 900,000 shares of 10% noncumulative (nonconvertible) preferred stock outstanding. The following...
-
Performers in the Rock and Roll Hall of Fame From its founding through 2015, the Rock and Roll Hall of Fame has inducted 303 groups or individuals, and 206 of the inductees have been performers while...
-
The 10-Mg helicopter carries a bucket containing 500 kg of water, which is used to fight fires, if is hovers over the land in a fixed position and then releases 50 kg/s of water at 10m/s, measured...
-
What accounts are affected, and in which direction, by the following business activity? Use account names from the expanded accounting equation. Purchase supplies for $ 2 0 0 cash. Question 2 5...
-
In a volumetric determination of an analyte A, the data obtained and their standard deviations are as follows: From the data, find the coefficient of variation of the final result for the % A that is...
-
1) Write a script that will generate one random integer between 1 and 100, and will print whether the random integer is divisible by 3 or not. Sample output 27 This is number is divisible by 3.
-
Capital assets are important in all businesses because they represent significant investments. How are capital assets accounted for in government and not-for-profit organizations? Provide examples....
-
Jay Ouellette, CEO of Bumper to Bumper Incorporated, anticipates that his company's year - end balance sheet will show current assets of $ 1 2 , 6 9 3 and current liabilities of $ 7 , 4 4 0 ....
-
Using appropriate guidance to determine where the value of the federal government's estimated petroleum royalties from the production of federal oil and gas proved reserves should be reported and...
-
ending inventory price date end of year prices index dec 31 2016 69400 100 dec 31 2017 102080 116 dec 31 2018 110208 128 dec 31 2019 123816 132 dec 31 2020 116058 138 Using the dollar-value LIFO...
-
A Tax team determined their audit client could benefit from a tax service recently provided to a Channel 2 client. However, the senior manager is not clear if that non-audit service would be...
-
Florida Growers Association produces both orange and grapefruit juice that it sells as wholesale products to various grocery suppliers. Each type of juice requires a three-step process. The first...
-
In Exercises 516, find the focus and directrix of the parabola with the given equation. Then graph the parabola. y 2 = 4x
-
Meyerson's Bakery is considering the addition of a new line of pies to its product offerings. It is expected that each pie will sell for $15 and the variable costs per pie will be $9. Total fixed...
-
The Ocean City water park is considering the purchase of a new log flume ride. The cost to purchase the equipment is $3,500,000, and it will cost an additional $250,000 to have it installed. The...
-
In your position as research assistant to a portfolio manager, you need to analyze the profitability of the companies in the portfolio. Using the data for 3M Co. below: a. Calculate the net profit...
-
Has the U.S. economy experienced inflation or deflation during recent recessions? Explain.
-
How do you think recessions influence elections?
-
Inflation is soaring and employment is beginning to show sustained improvement. The unemployment rate is 6 percent, compared to its 3.5 percent rate prepandemic. The CPI grew 5.4 percent in June, and...
Study smarter with the SolutionInn App