Before-tax operating costs

Assignment Help Accounting Basics

Reference no: EM13159053

You have been asked by the president of your company to evaluate the proposed acquisition of a new spectrometer for the firm's R&D department. The equipment's basic price is $70,000 and it would cost another $15,000 to modify it for special use by your firm. The spectrometer, which falls into the MACRS 3-year class, would be sold after 3 years for $30,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The spectrometer would have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 40%.

a. What is the net cost of the spectrometer?(That is, what is the Year-0 net cash flow?)

b. What are the net operating cash flows in years 1, 2, and 3?

c. What is the additional (nonoperating) cash flow in Year 3?

d. If the project's cost of capital is 10%, should the spectrometer be purchased?

Reference no: EM13159053

Questions Cloud

Distinct meanings of cultural relativism : Cultural Anthropology gives three distinct meanings of cultural relativism: a moral stance that requires anthropologists to suspend moral and ethical judgments when interacting with a culture different from their own

Paracellular transport is associated with which of following : Paracellular transport is associated with which of the following?

Determine the mole fraction of component : Determine the mole fraction of each component to at least three significant figures.

Determine its level of profit : Determine its level of profit. (b) Suppose that a fixed costs increase to $75. Verify that this change in fixed costs does not affect the firm's optimal output.

Before-tax operating costs : The spectrometer would have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 40%.

Differences between a traditional hazard : Discuss two major differences between a traditional hazard such as the 2007 California Wildfires and the terrorist-related hazards associated with the Aum Shinrikyo Sarin Gas attack on the Tokyo Subway that occurred in March of 1995.

Which of following activities is not associate with cadherin : Which of the following activities is not associated with cadherins?

Computed using the energy level equation : calculated using the energy level equation. A Li2+ ion emitted a photon with a wavelength of 11.4 nm to reach an energy level with n=1. What was the value of n for its initial energy level?

Determine the effective interest rate : Determine the effective interest rate that Chuck would receive when the bond matures, if it has paid dividends as scheduled.

User Account

All Pages