You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of thespectrometer including modifications is $180,000, and the equipment will be fully depreciated at the time of purchase. Theequipment would be sold after 3 years for $49,000. The equipment would require a $15,000 increase in net operatingworking capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $37,000per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%.a. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is theYear 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.$b. What are the project's annual cash flows in Years 1, 2, and 37 Do not round intermediate calculations. Round youranswers to the nearest dollar.Year 1: $Year 2: $Year 3: $*

The initial outlay of funds or startup costs associated with launching a new enterprise or buying an…

You must evaluate the purchase of a proposed spectrometer for the R&D departm spectrometer including modifications is $180,000, and the equipment will be fully depreciated at the time of purchase. Th equipment would be sold after 3 years for $49,000. The equipment would require a $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $37,00 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. a. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar. $ b. What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar. * Year 1: $ Year 2: $ Year 3: $

You must evaluate the purchase of a proposed spectrometer for the R&D departm spectrometer including modifications is $180,000, and the equipment will be fully depreciated at the time of purchase. Th equipment would be sold after 3 years for $49,000. The equipment would require a $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $37,00 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. a. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar. $ b. What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar. * Year 1: $ Year 2: $ Year 3: $

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...

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Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
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