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

Sign Up

New Project Analysis

Open Document

Below is a free excerpt of "New Project Analysis" from Anti Essays, your source for free 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 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 $4000. 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 is 40%.
  A) What is the net cost of the spectrometer?  
Information was given the equipment base price, modification for use cost and working capital for use $70,000.00 + $15,000.00 + 4,000.00 = $89,000.00. The 89,000 is negative since it is the cost of the equipment and all associated costs to bring into operation.
The answer is negative $89,000.
  B) What are the net operating cash flows in years 1, 2, 3?
Year 1 year 2 year3
After –tax savings $15,000 $15,000 $15,000
Depreciation shield $11,220 $15,300 $ 5,100
Net- cash Flow $26,220 $30,300 $20,100

  C) What is the additional (non- operating) cash flow in year 3?
Salvage value + net working capital recovery –tax on salvage value
30,000 + 4,000 – 9620 = $24,380.00     Cash flow year 3 is $24,380.00
  D) If the project cost of capital is 10% should the spectrometer be purchased?
Calculated with financial calculator CFo = -89000, CF1 = 26220, CF2 = 30,300 CF3 = 4480 and I/YR = 10 solve for NPV = -$6703.83.
NPV = -$6704 and should not be purchase.

Show More


MLA Citation

"New Project Analysis". Anti Essays. 10 Dec. 2018


APA Citation

New Project Analysis. Anti Essays. Retrieved December 10, 2018, from the World Wide Web: http://teachingsail.com/free-essays/New-Project-Analysis-411408.html

SMY049 SMY060 Adesivi unghie NATALE FIOCCHI di NEVE CHRISTMAS snow nail stickers | Fiat 500L 1.3Mjt 85CV Panorimic Edition Lounge | Komedija