he president of your company, MorChuck Enterprises, 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 $80,000, and it would cost another $16,000 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 $34,400. The MACRS rates for the first three years are 0.3333, 0.4445 and 0.1481. (Ignore the half-year convention for the straight-line method.) Use of the equipment would require an increase in net working capital (spare parts inventory) of $3,000. The machine would have no effect on revenues, but it is expected to save the firm $30,200 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 25%. Cash outflows and negative NPV value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.   What is the Year-0 net cash flow? $   What are the net operating cash flows in Years 1, 2, and 3? (Note: Do not include recovery of NWC or salvage value in Year 3's calculation here.) Year 1: $   Year 2: $   Year 3: $   What is the additional (nonoperating) cash flow in Year 3? $   If the project's cost of capital is 13%, what is the NPV of the project?

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk
Section: Chapter Questions
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The president of your company, MorChuck Enterprises, 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 $80,000, and it would cost another $16,000 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 $34,400. The MACRS rates for the first three years are 0.3333, 0.4445 and 0.1481. (Ignore the half-year convention for the straight-line method.) Use of the equipment would require an increase in net working capital (spare parts inventory) of $3,000. The machine would have no effect on revenues, but it is expected to save the firm $30,200 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 25%. Cash outflows and negative NPV value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.

 

  1. What is the Year-0 net cash flow?

    $  

  2. What are the net operating cash flows in Years 1, 2, and 3? (Note: Do not include recovery of NWC or salvage value in Year 3's calculation here.)

    Year 1: $  
    Year 2: $  
    Year 3: $  
  3. What is the additional (nonoperating) cash flow in Year 3?

    $  

  4. If the project's cost of capital is 13%, what is the NPV of the project?

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