You have been asked by the president of your company to evaluatethe proposed acquisition of a new spectrometer for the firmsR&D department. The equipments basic price is $70000 and itwould cost another $15000 to modify it for special use by yourfirm. The spectrometer which falls into the MACRS 3-years classwould be sold after 3 years for $30000. Use of the equipment wouldrequire an increase in net working capital (spare parts inventory)of $4000. The spectrometer would have no effect on revenues butit is expected to save the firm $25000 per year in before-taxoperating costs mainly labor. The firms marginalfederal-plus-state tax rate in 40 per cent.a. What is the net cost of the spectrometer? (that is what is theYear 0 net cash flow?)b. What are the net operating cash flows in Years 1 2 and 3?c. What is the additional (non-operating) cash flow in Year 3?d. If the projects cost of capital is 10 percent should thespectrometer be purchased?
Written on May 6th, 2018 by
You have been asked by the president of your company to evaluatethe proposed acq
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