Purchase Solution

Calculate all years' cash flow, NPV, IRR

Not what you're looking for?

Ask Custom Question

Capital Budgeting

You have been asked by the President of your company to evaluate the proposed acquisition of a new spectrometer for the firmâ??s R&D department. The equipmentâ??s base price is $75,000 and it would cost another $15,000 to install it. The spectrometer falls under 3-year MACRS schedule and will be sold after 3 years for $30,000. Use of the equipment will require an increase in net working capital of $4,000 in year 0. The net working capital will be fully recovered or returned when the project is terminated at the end of year 3. The project is expected to generated Earnings Before Taxes and Depreciation (EBTD) of $25,000 per year. Assume the firmâ??s tax rate is 40%.{Note 3-year MACRS tax rates are =.33; .45; .15 and .07 percent in years 1-4; you may recall that due to half-year convention 3-year rule leads to depreciation for 4 years)

(a) What is the cash flow in year 0?
(b) What is the cash flow in years 1, 2, 3?
© If the cost of financing this project is 10%, should the project be accepted using NPV or IRR?
(d) How does depreciation expense influence the results in part © even though depreciation is a non-cash expense?

Purchase this Solution

Solution Summary

Solution provides standard capital budgeting method to determine whether a proposed acquisition should be accepted. Half-year convention 3-year MACRS depreciation is also discussed.

Purchase this Solution

Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.