Corporate Finance Assignment/ Professional Essay Writers
NEW PROJECT ANALYSIS
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $240,000, and it would cost another $48,000 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 $108,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. 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 $56,000 per year in before-tax labor costs. The firm’s marginal federal-plus-state tax rate is 40%.
1. 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. The negative amount should be indicated by a minus sign.
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 $
In Year 2 $
In Year 3 $
3. If the WACC is 14%, should the spectrometer be purchased? Get Finance Help Today