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New Project Analysis Of Spectrometer ($70000)

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Acquisition of new Spectrometer Problem 11-7 (A Relevant Information: Equipment Base Price : Modification for Use Cost: Working Capital for Use:

$70,000.00 $15,000.00 $4,000.00 $89,000.00

Year 0 Net Cash Flow : ($89,000.00) negative since this is the cost of the equipment and all associated costs to bring into operation

(B Depreciation Base Cost of Asset : Modification/Use Cost: Depreciation Base $ 70,000.00 $15,000.00 $ 85,000.00

Working capital for use not included since asset valuation is based upon cost of asset and costs related to bring asse

Operating Cash Flows Revenue -Expenses EBDT -Depreciation EBT - Taxes (40% Rate) After Tax "operating profit" + Depreciation Cash Flow Year 1 $0.00 ($25,000.00) $25,000.00 $ 28,050.00 ($3,050.00) ($1,220.00) ($1,830.00) $ 28,050.00 $26,220.00

Alternative calculation: Tax Rate : 40% Expense Savings : $ 25,000.00 Depreciation (see above in N16, N17, N18) Year 1 Post Tax Savings: $ 15,000.00

Year 2 $ 15,000.00

Cash shielded through depreciation Cash Flow

$ 11,220.00 $ 26,220.00

$ 15,300.00 $ 30,300.00

(C

Additional (non-operating) cash flow in year 3 Salvage Value : Book Value of Asset in Year 4 Tax on salvage value : Increase in NWC : Total nonoperational cash flows : $ 30,000.00 $ 5,950.00 $ (9,620.00) $ 4,000.00 $ 24,380.00

(D

Year 0 1 2 3 Cost of capital : Plugging these values in Finacial Calculator Yields an NPV of: 10%

Cash Flow ($89,000.00) $26,220.00 $30,300.000 $ 44,480.00

Calculator Inputs

CF0 CF1 CF2 CF3 I

-6703.3831

Since the NPV is negative, the spectrometer should not be purchased

When calculating NPV in Excel : ($6,703.83) Value is still negative, and decision still holds - do not purchase.

Depreciation Table Year 1 2 3 4

Depreciation Base $ 85,000.00 $ 85,000.00 $ 85,000.00 $ 85,000.00

MACRS% 0.33 0.45 0.15 0.07

Depreciation $ 28,050.00 $ 38,250.00 $ 12,750.00 $ 5,950.00

and costs related to bring asset to use

Year 2 $0.00...

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MLA Citation

"New Project Analysis Of Spectrometer ($70000)". Anti Essays. 22 Feb. 2018

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APA Citation

New Project Analysis Of Spectrometer ($70000). Anti Essays. Retrieved February 22, 2018, from the World Wide Web: http://www.antiessays.com/free-essays/New-Project-Analysis-Of-Spectrometer-70000-142801.html