Maurice Tutor

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Category > Accounting Posted 10 Aug 2017 My Price 8.00

R&D department

2-8 New Project Analysis 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 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%. a. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? b. What are the projects annual cash flows in Years 1, 2, and 3? c. If the WACC is 12%, should the spectrometer be purchased? Explain.

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Maurice Tutor
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Status NEW Posted 10 Aug 2017 11:08 AM My Price 8.00

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