New-project analysis. The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firm's R&D department. The equipment's basic price is $100,000, and it would cost another $15,000 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $35,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The machine would have no effect on revenues, but it is expected to save the firm $40,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 40%.
a. What is the year 0 net cash flow? If the answer is negative, use a minus sign.
b. What are the net operating cash flows in years 1, 2, and 3? Round your answers to the nearest dollar.
c. What is the additional (non-operating) cash flow in year 3? Round your answer to the nearest dollar.
New-project analysis. The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firm's R&D department. The equipment's basic price is $100,000, and it would cost another $15,000 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $35,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The machine would have no effect on revenues, but it is expected to save the firm $40,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 40%.
a. What is the year 0 net cash flow? If the answer is negative, use a minus sign.
b. What are the net operating cash flows in years 1, 2, and 3? Round your answers to the nearest dollar.
c. What is the additional (non-operating) cash flow in year 3? Round your answer to the nearest dollar.
