Reference no: EM131351747
You must evaluate the purchase of a proposed 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 firm’s marginal federal-plus-state tax rate is 40%.
1: What is the initial investment?
2: What is the deprecation expense for year one?
3: What is the annual cash flow for year one?
4: What is the annual cash flow for year two?
5: What is the deprecation expense for year three?
6: What is the operating cash flow for year 3?
7: What is the terminal cash flow for year 3?
8: What is the projects NPV?
9: What is the IRR
10: What is the MIRR?
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: You must evaluate the purchase of a proposed 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. What is the initial investment? What is the deprecati..
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