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spayn [35]
2 years ago
14

You must evaluate a proposed spectrometer for the R&D department. The base price is $190,000, and it would cost another $47,

500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $57,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $13,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $57,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%.
What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent.
$

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?
Business
1 answer:
kolbaska11 [484]2 years ago
5 0

Answer:

See the explanation for the answers.

Explanation:

(a)

                                                     Year

                                        0                      1                   2             3

Cost of Equipment=   237500              0                   0            0

Base price +

Modification

Cost

Working Capital          13000             0                 0           -1300

Saving in                        0               57000         57000      57000

Labor Cost

Depreciation(%)            0              33%               45%            15%

Depreciation                 0             78375           106875      35625

.Book Value            237500       159125           52250         16625

.Salvage Value            0                  0                  0               57000

.After Tax                     0                  0                  0               40850

Salvage Value  

.Cash Flow           -250500         65550         76950         102300

.Discounted Cash -250500     57500          59210.5    69049.59

Flow at 14%  

NET VALUE                -64739.89            

(a)

Initial Investment / Cash Flow in year 0   = Cost of Equipment + Increase in working capital

                               = 237500 + 13000

                               =$250,500

Cash Flows in Years 1 and 2   = (Saving in Labor Cost - Depreciation) * (1 - Tax Rate) +  Depreciation

Cash Flow in year 3   = (Saving in Labor Cost - Depreciation) * (1 - Tax Rate) + Depreciation + Recovery of Working Capital + After Tax Salvage Value

After Tax Salvage Value = Salvage Value - (Salvage Value - Book Value) * Tax Rate

                                        = 57000 - (57000 - 16625) * 0.4

                                       = $40,850

(b)

Year       Cash Flow

1         $65550

2         $76950

3         $102300

(c)

If WACC is 14%, the net present value of the project is -$64,739.89. Since NPV is negative, the barometer should not be purchased.

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The compensation associated with executive stock option plans is:A. The book value of a share of the company's shares times the
Mekhanik [1.2K]

Answer:

The correct answer is letter "B": The estimated fair value of the options.

Explanation:

Employee Stock Options or ESOs are equity compensations given be firms typically to high-range executives. The company provides the workers with call options so employees can purchase the derivatives at a certain price and time. These types of compensations are useful as motivations for the employees to help them perform better in their duties.

5 0
3 years ago
Which of the following types of inventory describes inventory that has been purchased but not​ processed?
PtichkaEL [24]

Answer:

A. raw material inventory

Explanation:

Inventory materials are basically of 3 types namely; Raw materials, semi-finished goods and finished goods.

Raw materials are inventory materials yet to be processed. It is usually referred to as material cost.

Inventory items that have been processed but yet to be finished are called semi finished goods. Such items are also called ​work-in-process inventory.

Finished goods are inventory items ready to be sold.

Based on the above statements, the right option is A. raw material inventory.

3 0
3 years ago
If a country were to place a limit on the number of cars that could be imported in a year, it would be an example of what kind o
gizmo_the_mogwai [7]
Subsidy imported. trade regulation
6 0
2 years ago
You are planning to save for retirement over the next 30 years. To do this, you will invest $750 per month in a stock account an
Alex

Answer:

The withdrawals will be of  $ 11,379.014 per month

Explanation:

Future value of the annuities:

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

C         750.00

time 360(30 years x 12 monhs per year)

rate 0.008333333 (10% / 12 months)

750 \times \frac{1-(1+0.00833)^{-360} }{0.008333} = PV\\

PV $1,695,365.9436

C \times \frac{(1+r)^{time} -1}{rate} = PV\\

C         250.00

time 360 (30 years x 12 monhs per year)

rate             0.005 (6% / 12 months)

250 \times \frac{(1+0.005)^{360} -1}{0.005} = PV\\

PV $251,128.7606

Total 1,695,365.84 + 251,128.76 = 1.946.494,6‬

and from here we withdraw for 25 years:

PV \div \frac{1-(1+r)^{-time} }{rate} = C\\

PV 1,946,495

time 300 (25 years x 12 months)

rate 0.004166667 (5% / 12 months)

1946494.6 \div \frac{1-(1+0.004167)^{-300} }{0.004167} = C\\

C  $ 11,379.014

6 0
2 years ago
Terry took out a mortgage loan for $100,000 at an interest rate of 11.5% for 30 years. if terry had not had a bankruptcy on her
Mrrafil [7]

Because Terry had a bankruptcy on her credit report, the additional amount of interest that Terry is paying over the life of the loan is <u>$167,839.720</u>.

<h3>What is interest?</h3>

Interest is the finance charge for a loan or mortgage.

It is calculated on the principal amount based on the agreed rate and maturity period of the loan.

We can compute the interest using an online finance calculator as below.

<h3>Data and Calculations:</h3>

Home Price= $100,000

Down Payment = 0%

Loan Term = 30 years

Interest Rate = 11.5%

Monthly Payment:   $990.29

Normal monthly payment (without a bankruptcy) = $524.07

Total of 360 Mortgage Payments = $356,504.92 ($990.29 x 30 x 12)

Total of 360 Mortgage Payaments without bankruptcy = $188,665.20 ($524.07 x 30 x 12)

Additional payment in interest = $167,839.720 ($356,504.92 - $188,665.20)

Thus, the additional amount of interest that Terry is paying over the life of the loan is $167,839.720.

Learn more about interest calculations at brainly.com/question/25545513

#SPJ4

4 0
2 years ago
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