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Maxwell8066
14.12.2019 •
Business
The base price of a spectrometer is $140,000, and shipping and installation costs would add another $30,000. the machine falls into the macrs 3-year class (33%, 45%, 15% and 7%) and it would be sold after 3 years for $60,000.
the machine would require a $8,000 increase in working capital (increased inventory less increased accounts payable).
there would be no effect on revenues, but pre-tax labor costs would decline by $50,000 per year.
the marginal tax rate is 40%, and the wacc is 12%.
1. what is the initial investment outlay, that is, the year 0 project cash flow?
2. what are the net operating cash flows during years 1, 2, and 3?
3. should the machine be purchased? explain your answer.
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Ответ:
Answer and Explanation:
A.) The net cost of the spectrometer is 170,000 ( 140,000 plus 30,000)
The Year 0 project cash flow is 178,000. ( 170,000 plus spare parts inventory of 8000)
B.) Project Net cash flow Year 1 is: $45587
Cost saving before tax 50000
Less Depreciation 36300 ( 170,000 minus salvage value 60,000) x .33 =36,300)
Less Amortization Spare Parts 2667 ( 8000 divided by 3 =2667)
Net Income after depreciation/amortization 11033
Income Tax 40% 4413
Net Income after Tax 6620
Add: non cash charges depreciation/amortization 38967
Cash flow generated year 1 45587
Project Net cash flow Year 2 is: $ 50867
Cost saving before tax 50000
Less Depreciation 49500 ( 170,000 minus salvage value 60,000) x .45 = 49500 )
Less Amortization Spare Parts 2667 ( 8000 divided by 3 =2667)
Net Income/loss after depreciation/amortization -2167
Income Tax shield on loss 40% 867
Net Income/loss after Tax shield -1300
Add: non cash charges depreciation/amortization 52167
Cash flow generated year 2 50867
Project Net cash flow Year 3 is: $ 76747
Cost saving before tax 50000
Less Depreciation 16500 ( 170,000 minus salvage value 60,000) x .15 =16500)
Less Amortization Spare Parts 2667 ( 8000 divided by 3 =2667)
Net Income after depreciation/amortization 30833
Gain onSale of equipment at year 3 52300 ( $ 60000 minus book value of equipment7700)
Total Income 83133
Income Tax 40% 33253
Net Income after Tax 49880
Add: non cash charges depreciation/amortization 19167
Total income after tax 69l047
add: Sale of equipment book value 7700
Cash flow Generated Year 3 76747
C.) Based on Net Present value of the cash flow discounted at 12%, the spectrometer should not be purchased as the NPV is negative at $-42120
cash flow year 0 -178000 x 1.0 Present value factor of $1 at 12% at year 0= -178000
Cash flow year 1 45587 x 0.892857143 =40702
Cash Flow year 2 50867 x0.797193878= 40551
Cash Flow year 3 76747 x 0.711780248= 54627
Net Present value $ -42120
Present value factor at 12% at end of year 1 = 1/1.12=0.892857143
Present value factor of 12% at end of year 2 =0.892857143/1.12=0.797193878
Present value factor of 12% at end of year 3 =0.797193878/1.12=0.711780248
Ответ:
don't understanding .
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