You must evaluate the purchase of a spectrometer for the R&D department. Thebase price is $140,000, and it would cost another $30,000 to modify the equpmentfor special use by the firm. The equipment falls into the MACRS 3-year class andwould 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 projectwould have no effect on revenues, but it should save the firm $50,000 per year inbefore-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 12Given the information in the problem:What is the project's Modified Internal Rate of Return (MIRR)?12%) 7.74%1 6.03%4.02%

Before investing in any project, profitability of the project is computed by using various methods…

Answered: You must evaluate the purchase of a…

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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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 equipement 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 firms marginal federal plus state tax rate is 40%. The firms WACC is 12%. What is the inital investment outlay for the project? That is, what is the Year 0 project cash flow? What is the projects incremental depreciation for year 1? What is the projects annual cash flow for year 1? What is the projects annual cash flow for year 2? What is the projects incremental depreciation for year 3? What…
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 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 8 Given the information in the problem: Liquidation of Net Operating Working Capital: What is the project's cash flow from the liquidation of net operating working capital (spare parts inventory) in year 3? O $8,000 ) ($8,000) $48,760 O $11.900
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 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 proposed spectrometer for the R&D department. The base price is $280,000, and it would cost another $42,000 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 $84,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $5,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $48,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. 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 -a. 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…
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $130,000, and it would cost another $19,500 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 $45,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $72,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. 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 base price is $130,000, and it would cost another $19,500 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 $45,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $72,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. 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.
You must evaluate the purchase of a proposed spectrometer for the RAD department. The base price is $120,000, and it would cost another $30,000 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 $42,000. The applicable depreciation rates are 33%, 45%, 15%, and 75%. The equipment would require a $50,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $32,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. Using the same data above, instead of MACRS depreciation method, the entity will use the straight-line method. Determine: 1. Project’s annual cash flows in Years 1, 2 and 3. 2. Calculate NPV, using the 12% WACC. 3. Should the equipment be purchased using the straight-line method of depreciation? Why?
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 equipment for special use by the firm. The equipment falls into the MACRS 4 year class and would be sold after 4 years for $60,000. The applicable depreciation rates are 33%, 45%, 15% and 7%. The equipment would require an $8000 increase in net operating working capital. The project would have no effect on revenues, but it should save the firm $50,000 per year before-tax labour costs. The firm's marginal federal-plus state tax rate is 40%. QUESTIONS:1. What is the initial investment outlay for the spectrometer, that is, what is the year 0 project cash flow? 2. What are the project's annual cash flows in Years 1, 2,3 and 4? 3. If the WACC is 12%, should the spectrometer be purchased? Explain.

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