week5project - Janice Fernandez Week 5 Project FI515 11-7...

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Janice Fernandez Week 5 Project FI515 11-7 New Project Analysis 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 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 year 1, 2, and 3? C. C. What is the additional non-operating cash flow in year 3? D. If the project’s cost of capital is 10%, should the spectrometer be purchased?
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This note was uploaded on 02/06/2012 for the course FINANCE 515 taught by Professor Tovin during the Spring '11 term at DeVry Chicago.

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week5project - Janice Fernandez Week 5 Project FI515 11-7...

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