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1) New-Project Analysis

President of company you work for has asked you to estimate proposed acquisition of new chromatograph for firm’s R&D department equipment's basic price is= $140,000, and it would cost another= $21,000 to alter it for special use by your firm. Chromatograph, which falls into MACRS 3-year class, would be sold after three years for= $49,000. Use of equipment would need the increase in net working capital (spare parts inventory) of= $7,000. Machine would have no effect on revenues, but it is expected to save firm $42,000 per year in before-tax operating costs, mostly labour. Firm's marginal federal-plus-state tax rate is= 40%.

i) What is the Year-0 net cash flow?

ii) What are the net operating cash flows in Years 1, 2, and 3?

iii) What is the extra (non-operating) cash flow in Year 3?

iv) If project's cost of capital is 14%, must chromatograph be purchased (Y/N)?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914702

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