You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $80,000, and it would cost another $12,000 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 $28,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $9,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $52,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. a. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest cent. 24 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 cent. Year 1: $ Year 2: $ Year 3: $ c. If the WACC is 11%, should the spectrometer be purchased? -Select- v

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $80,000, and it would cost another $12,000 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 $28,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $9,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $52,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. a. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest cent. 24 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 cent. Year 1: $ Year 2: $ Year 3: $ c. If the WACC is 11%, should the spectrometer be purchased? -Select- v

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 14P

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This is problem 12-8 on page 429 of your text: You must evaluate the purchase of a spectrometer for the R&D department. The base price is $140,000, and it would cost another $30,000 to modify the equpment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $60,000. The applicable depreciation rates are 33%, 45%, 15%, and 7% as discussed in Appendix 12A. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $50,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. The firm's WACC ("hurdle rate" or "required rate of return") is 12%
You must evaluate the purchase of a proposed spectrometer forthe R&D department. The base price is $140,000, and it would cost another $30,000 to modifythe equipment for special use by the firm. The equipment falls into the MACRS 3-yearclass and would be sold after 3 years for $60,000. The applicable depreciation rates are 33%,45%, 15%, and 7%, as discussed in Appendix 12A. The equipment would require an $8,000increase in net operating working capital (spare parts inventory). The project would haveno effect on revenues, but it should save the firm $50,000 per year in before-tax labor costs.The firm’s marginal federal-plus-state tax rate is 35%.a. What is the initial investment outlay for the spectrometer, that is, what is the Year 0project cash flow?b. What are the project’s annual cash flows in Years 1, 2, and 3?c. If the WACC is 9%, should the spectrometer be purchased? Explain.
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You must evaluate the purchase of a spectrometer for the R&D department. The base price is $140,000, and it would cost another $30,000 to modify the equpment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $60,000. The applicable depreciation rates are 33%, 45%, 15%, and 7% as discussed in Appendix 12A. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $50,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%.
You must evaluate the purchase of a spectrometer for the R&D department. The base price is $140,000, and it would cost another $30,000 to modify the equpment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $60,000. The applicable depreciation rates are 33%, 45%, 15%, and 7% as discussed in Appendix 12A. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $50,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. The firm's WACC ("hurdle rate" or "required rate of return") is 12% Question 12 Given the information in the problem: What is the project's Modified Internal Rate of Return (MIRR)? 12% ) 7.74% 1 6.03% 4.02%
You must evaluate the purchase of a spectrometer for the R&D department. The base price is $140,000, and it would cost another $30,000 to modify the equpment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $60,000. The applicable depreciation rates are 33%, 45%, 15%, and 7% as discussed in Appendix 12A. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $50,000 per year in
You must evaluate the purchase of a spectrometer for the R&D department. The base price is $140,000, and it would cost another $30,000 to modify the equpment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $60,000. The applicable depreciation rates are 33%, 45%, 15%, and 7% as discussed in Appendix 12A. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $50,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. The firm's WACC ("hurdle rate" or "required rate of return") is 12%
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