What is the additional cash flow

Reference no: EM132049800

Question: 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 $180,000, and it would cost another $45,000 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 $81,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $7,200. The machine would have no effect on revenues, but it is expected to save the firm $54,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 30%.

a. What is the Year-0 net cash flow? If the answer is negative, use minus sign.

b. What are the net operating cash flows in Years 1, 2, and 3? Round your answers to the nearest dollar.

Year 1 $

Year 2 $

Year 3 $

c. What is the additional (nonoperating) cash flow in Year 3? Round your answer to the nearest dollar. $ d. If the project's cost of capital is 13%, should the chromatograph be purchased?

Reference no: EM132049800

Questions Cloud

Inflammation in chronic hypersensitivity disorders : Which drug is used to limit inflammation in chronic hypersensitivity disorders?

Journalize the transactions : Time tickets indicated that $47,390 was direct labor and $5,730 was indirect labor. Journalize the transactions

Why should every nation have a cybersecurity strategy : Explain the purpose of a national cybersecurity strategy and how it is used. Why should every nation have a cybersecurity strategy?

Firm that is debt-using with negative leverage : A firm that is debt-using with a negative leverage gain will always have a return on equity that is negative.

What is the additional cash flow : 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.

Describe some adaptations that species developed : Choose a species and describe some adaptations that species developed that allow them to survive in their native habitat.

Prepare the adjusting entry at december : Prepare the adjusting entry at December 31, 2015, to show the securities at fair value. The stock should be classified as available-for-sale securities

Define present value of multiple annuities : Present Value of Multiple Annuities A small business owner visits his bank to ask for a loan. The owner states that he can repay a loan at $2,700 per month.

Give one argument of the theory and one reason : Which of the hypotheses regarding primate evolution do you think is most plausible (arboreal, visual predation, angiosperm exploitation)?

User Account

All Pages