Excel Online Structured Activity: New project analysis
You must evaluate the purchase of a proposed spectrometer forthe R&D department. The base price is $60,000, and it wouldcost another $12,000 to modify the equipment for special use by thefirm. The equipment falls into the MACRS 3-year class and would besold after 3 years for $30,000. The applicable depreciation ratesare 33%, 45%, 15%, and 7%. The equipment would require an $13,000increase in net operating working capital (spare parts inventory).The project would have no effect on revenues, but it should savethe firm $30,000 per year in before-tax labor costs. The firm'smarginal federal-plus-state tax rate is 40%. The data has beencollected in the Microsoft Excel Online file below. Open thespreadsheet and perform the required analysis to answer thequestions below.
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What is the initial investment outlay for the spectrometer, thatis, what is the Year 0 project cash flow? Round your answer to thenearest cent. Negative amount should be indicated by a minussign.
$
What are the project's annual cash flows in Years 1, 2, and 3?Round your answers to the nearest cent.
In Year 1 $
In Year 2 $
In Year 3 $
If the WACC is 14%, should the spectrometer be purchased?
_____YesNo
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