Question

5. Problem 12.08 (New Project Analysis) eBook You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $130,000, and it would cost another $19,500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $32,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $6,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $75,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. a. What is the initial investment outlay for the spectrometer, that is, what is the Year O project cash flow? Enter your answer as a positive value. Round your answer to the nearest cent. 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 cent. Year 1: $ Year 2: $ Year 3: $ C. If the WACC is 11%, should the spectrometer be purchased? -Select- -Select Yes No Grade It Now Save & Continue Continue without saving

can u label the answers like a,b,c respectively please.

Answer 1

Initial Investment 130000+19500 149500 year savings depreciation EBT tax@35% EAT depreciation Operating Cash flows After tax salvage value nwc cost Cash flows PV@11% Present Value $ $ | $ $ $ $ $ 1 75,000.00 49,335.00 25,665.00 8,982.75 16,682.25 49,335.00 66,017.25 $ $ $ $ $ $ $ 2 75,000.00 $ 67,275.00 $ 7,725.00 $ 2,703.75 $ 5,021.25 $ 67,275.00 $ 72,296.25 $ $ $ 3 75,000.00 22,425.00 52,575.00 18,401.25 34,173.75 22,425.00 56,598.75 24,787.75 6,000.00 Terminal value sale price Book value profit tax@35% After tax salvage value $ $ $ $ $ 32,500.00 10,465.00 22,035.00 7,712.25 24,787.75 $ $ | $ 6,000.00) (149,500.00) (155,500.00) $ 1.0000 (155,500.00) $ $ 66,017.25 $ 0.9009 59,475.00 $ 72,296.25 0.8116 58,677.26 87,386.50 0.7312 NPV 63,896.265 26.548.51 | Ş $ Depreciation MACRS cost Depreciation Book Value $ $ $ 0.33 149,500.00 49,335.00 100,165.00 $ $ $ 0.45 149,500.00 67,275.00 32,890.00 $ $ $ 0.15 149,500.00 $ 22,425.00 $ 10,465.00 0.07 149,500.00 10,465.00 Activate Windows

Answers $ (155,500.00) Year1 Year2 Year3 $ 66,017.25 $ 72,296.25 $ 87,386.50 Purchase the Machine