Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is
$300,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $132,000. The equipment
would require a $10,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save
the firm $54,000 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 12%, should the spectrometer be purchased?
-Select- v
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