Question

1. The UFRO Company is considering the replacement of an existing spectrometer with a new spectrometer; faster and with expanded capacity. If the new spectrometer is purchased, the existing (old) computer will be sold for $30,000 immediately. The existing spectrometer was purchased four (4) years ago for $300,000. It is being depreciated under the 3-year MACRS schedule. The salvage value at the end of its seven-year life will be $30,000. The new spectrometer will be purchased for $500,000. If the new spectrometer is purchased, accounts receivable decrease immediately by $20,000; accruals will increase immediately by $40,000; and accounts payable will decrease immediately by $30,000. The UFRO Company has a 30% corporate tax rate. Shipping costs for the new spectrometer, paid by the manufacturer, will be $20,000; and installation costs for the new spectrometer, paid by UFRO, will be $50,000. If the new spectrometer is purchased, sales in year 1 will be $700,000, sales in year 2 will be $800,000, and sales in year 3 will be $900,000. Without the new spectrometer, sales in each year will be $400,000. Operating expenses will continue to be 50% of sales. With the new spectrometer accounts receivable will increase by $5,000 at T=1 and $10,000 at T=2. The new computer will be depreciated using the 3-year MACRS schedule [yr.1: 33%; yr. 2: 45%; yr. 3: 15%; and yr. 4: 7%]. The new spectrometer will be sold, however, after three (3) years for $100,000. The UFRO Company has a cost of capital of 12%.

Calculate the NPV and IRR

Answer 1

ANSWER:- Capital budgeting ! NEW Spectromey is perchased then old computer Sold 30,000 2.4 Fouo years ago the Exisung spectrometer pinchard 300,000 3. MACRS scheciule 500,000 4. new spectromer purchard at installation cost : 50,000 total 550,000 . 20,000 कार Shipping cost, born by manufacture, hece will not ached 28t of spect op meter Account receivable Decrease Increase Accruals Account payable decrease Gqporate Tax 20,000 40,000 30,000 20,000 Depreciation for existing spectromer 33:33 89,991 94.45 120015 14.81 39987 20170,000 741 20,000 De preciolion for Nece spectromey 33.33 270,000 149,985 200025 66645 44.45 14.81 7.41 33 345 450,000

particularg 412 Scene of new spectomer puchage Sula 100.000 350,000 350,000 200.000 900,000 400,000 450,000 400,000 40000 operating expenoeg at 10sales poopit Sarne op. new gperlopmeru punchased Operating Cxpenses at 50). Of Sobe 400,000 300,000 400,000 400,000 200,000 300,000 200,000 200,000 300,000 profit 5,000 0000 Account recievable 20,000 40,000 Aceals increase Account payable decrease Sale of old compelley Incremental Depreciation 30,000 30,000 59,994 80,010 285010 96,658 286658 289994 profit 86,998 85,503 85997 Tax at 30). poogit 200,661 199507 208996 profit After tar 234,812 282889 161,801 Ner presente value NpY = cash flow /CNtiya 6019442 Less 550,000 (13) IRR - SOM OR NPV - Initiala investment *** - Thantung you