New Project Analysis

You have been asked by the president of your company to evaluate the proposed erudition of a new mass spectrometer for the firms R&D department. The equipments basic price is $70,000, and it would cost another(prenominal) $15,000 to transmute it for special use by your firm. The spectrometer, which falls into the MACRS 3-year class, would be change after 3 years for $30,000. Use of the equipment would supplicate an cast up in net working peachy (sp atomic number 18 sepa rove inventory) of $4,000. The spectrometer would have no effect on revenues, besides it is judge to save the firm $25,000 per year in before-tax in operation(p) costs, primarily labor. The firms marginal federal-plus-state tax rate is 40%. a.What is the net cost of the spectrometer? (That is, what is the course of instruction-0 net bills flow?) b.What are the net operating capital flows in familys 1, 2, and 3? c.What is the additional (nonoperating) cash flow in Year 3? d.If the projects cost of ca pital is 10%, should the spectrometer be purchased? a. Net Cost (Year 0 net cash flow) = -$89.000 Net Cost=cash Outflows = determine + Modification + summation in Working Capital =(-70,000) + (-15,000) + (-4,000) =-89,000 b.

Net operational notes Flow Year 1 = $26,220 Net operational notes Flow Year 2 = $30,300 Net operational Cash Flow Year 3 = $20,100 dispraise disbursal Year 1=(basis)(MARCS allowance) =(price + modification)(MARCS allowance) =(70,000 + 15,000)(0.33) =(85,000)(0.33) =28,050 Depreciation expense Year 2=(basis)(MARCS allowance) =(price + modification)(MARCS allowance) =(70,000 + 15,000)(0.45) =(85,000)(0.45) =38,250 Depreciation expense Year 3=(basis)(MARCS al! lowance) =(price + modification)(MARCS allowance) =(70,000 + 15,000)(0.15) =(85,000)(0.15) =12,750 Net Op CF Year 1=[after-tax cost savings] + [depreciation shield] =[annual savings(1 tax rate)] + [depreciation expense(tax rate)] =(25,000)(1 ...If you want to thread a full essay, order it on our website: OrderEssay.net

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