### Welcome

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

# Fi515 Week 5 Project Essay

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...

• Submitted by: KellerFI515
• on February 23, 2013
• Length: 453 words
• Views: 486
• Popularity Rank: 106242
• 1 rating(s)

### Citations

##### MLA Citation

"Fi515 Week 5 Project". Anti Essays. 21 May. 2018

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

##### APA Citation

Fi515 Week 5 Project. Anti Essays. Retrieved May 21, 2018, from the World Wide Web: https://www.antiessays.com/free-essays/Fi515-Week-5-Project-411611.html