Welcome

Anti Essays offers essay examples to help students with their essay writing.

Sign Up

Fi515 Week 5 Project Essay

Open Document

Below is an essay on "Fi515 Week 5 Project" from Anti Essays, your source for research papers, essays, and term paper examples.

(11-7) New-Project Analysis
You have been asked by the president of your company to evaluate the proposed acquisition of a new spectrometer for the firm’s R&D department. The equipment’s basic price is $70,000, and it would cost another $15,000 to modify it for special use by your firm. The spectrometer, which falls into the MACRS 3-year class, would be sold after 3 years for $30,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The spectrometer would have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm’s marginal federal-plus-state tax rate is 40%.
a. What is the net cost of the spectrometer? (That is, what is the Year-0 net cash flow?)
    $70,000 [Base Price]
+ $15,000 [Customization Cost]
+ $4,000 [Cost for Equipment Use]
$89,000 [Net Cost of Spectrometer]











b. What are the net operating cash flows in Years 1, 2, and 3?
• $25,000 is the income received due to the savings of the spectrometer. Therefore, it should be taxed at the 40% rate:
$25,000 (1-0.40) = $15,000
• MACRS-3 Year:
Year Base Depreciation Amount
1 $85,000 33% $28,050
2 $85,000 45% $38,250
3 $85,000 15% $12,750
4 $85,000 7% $5,950
• Depreciation may be a non-cash expense, but it provides a positive cash flow. Therefore, it will have the 40% tax rate applied to the amount for each year.
Year 1: $28,050 (40%) = $11,220
Year 2: $38,250 (40%) = $15,300
Year 3: $12,750 (40%) = $5,100
• From here, the $15,000 of profit received each year is added to the after-tax depreciation income:
Year 1: $11,220 + $15,000 = $26,220
Year 2: $15,300 + $15,000 = $30,300
Year 3: $5,100 + $15,000 = $20,100









c. What is the additional (non-operating) cash flow in Year 3?
• Sale Value of Spectrometer: $30,000
• Book Value of Spectrometer:
  $85,000 [Base Cost]
- $28,050 [Depreciation of Year 1]
- $38,050 [Depreciation...

Show More


Citations

MLA Citation

"Fi515 Week 5 Project". Anti Essays. 22 Feb. 2018

<http://www.antiessays.com/free-essays/Fi515-Week-5-Project-411611.html>

APA Citation

Fi515 Week 5 Project. Anti Essays. Retrieved February 22, 2018, from the World Wide Web: http://www.antiessays.com/free-essays/Fi515-Week-5-Project-411611.html