finance excel 1
You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $80,000, and it would cost another $20,000 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 $40,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $12,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $73,000 per year in before-tax labor costs. The firm’s marginal federal-plus-state tax rate is 40%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.
Open spreadsheet
- 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. Negative amount should be indicated by a minus sign.
$ fill in the blank 2 - What are the project’s annual cash flows in Years 1, 2, and 3? Round your answers to the nearest cent.
In Year 1 $ fill in the blank 3
In Year 2 $ fill in the blank 4
In Year 3 $ fill in the blank 5 - If the WACC is 13%, should the spectrometer be purchased?
_____YesNo
complete excel attached
Sheet1
| Base price | $80,000 | ||||||||||||||||||||||||||
| Additional modification costs | $20,000 | ||||||||||||||||||||||||||
| Before-tax salvage proceeds | $40,000 | ||||||||||||||||||||||||||
| Change in | NOWC | $12,000 | |||||||||||||||||||||||||
| Before-tax labor cost savings | $73,000 | ||||||||||||||||||||||||||
| WACC | 13.00% | ||||||||||||||||||||||||||
| Tax rate | 40.00% | ||||||||||||||||||||||||||
| Yr. 0 | Yr. 1 | Yr. 2 | Yr. 3 | ||||||||||||||||||||||||
| Depreciation | 0.33 | 0.45 | 0.15 | ||||||||||||||||||||||||
| Modification costs | |||||||||||||||||||||||||||
| $73,000.00 | |||||||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||||||
| Taxes | |||||||||||||||||||||||||||
| After-tax operating income | |||||||||||||||||||||||||||
| Add back depreciation | $0.00 | ||||||||||||||||||||||||||
| Operating cash flows | |||||||||||||||||||||||||||
| Termination cash flows | |||||||||||||||||||||||||||
| $40,000.00 | |||||||||||||||||||||||||||
| Tax on salvage value | |||||||||||||||||||||||||||
| NOWC recapture | $12,000.00 | ||||||||||||||||||||||||||
| Project cash flows | |||||||||||||||||||||||||||
| NPV | |||||||||||||||||||||||||||
| Project acceptance? | |||||||||||||||||||||||||||
| Formulas | |||||||||||||||||||||||||||
| ERROR:#N/A | |||||||||||||||||||||||||||