Equipment basic price 70,000.00additional cost to modify 15,000.00MACR

QUESTION

Equipment basic price 70,000.00additional cost to modify 15,000.00MACRS 3 yr class .33/.45/.15/.07for sale after 3 years 30,000.00use will increase net working capital of 4,000.00save firm per year before tax 25,000.00federal +state tax 40%a. what is the net cost of the spectrometer?b. What are the
Given information: Equipment basic price 70,000.00 additional cost to modify 15,000.00 MACRS 3 yr class .33/.45/.15/.07 Residual income 30,000.00 Annual cash inflows 25,000 Increase in net working capital 4,000 Tax rate 40% a. Net cost of the sprectrometer: Equipment basic price 70,000 Additional cost 15,000 Net cost of the sprectrometer 85,000 b. Net operating cash flows: Operating cash flows in 1st year 25,000 Less: depreciation (0.33 * 70,000) -23,100 Tax bracket (40% of 23,100) 9,240 Net operating cash flows in 1st year 11,140 Operating cash flows in 2nd year 25,000 Less: depreciation (0.45 * 70,000) -31,500 Tax bracket (40% of 31,500) 12,600 Net operating cash flows in 2nd year 6,100 Operating cash flows in 3rd year 25,000 Less: depreciation (0.15 * 70,000) -10,500 Tax bracket (40% of 10,500) 4,200 Net operating cash flows in 3rdd year 18,700 Add: non operating cash flow 30,000 Total cash inflows in 3rd year 48,700 c. Additional non operating cash flow: Add: non operating cash flow 30,000 Tax bracket 4,200 Additional non operating cash flow

,200 d. Net present value: Cost of the investment $70,000 Additional cost 15,000 Depreciation: 1st year (0.9901 * 23,100) 22,869 2nd year (0.8264 * 31,500) 26,031 3rd year (0.7513 * 10,500) 7,888 Present value of total depreciation 56,788 Present value of cash out flows (B) $141,788 Present value of cash inflows: Annual cash inflows (25,000 * 2.4869) 62172.5 (3 years, 10% rate) Tax bracket: 1st year (0.9901 * 9,240) 9148.524 2nd year (0.8264 *12,600) 10412.64 3rd year (0.7513 * 4,200) 3155.46 Present value total tax bracket 22716.62 Present value residual value 22539 (0.7513 * 30,000) Present value of total cash inflows (A) 107428.1 Net present value (A-B) ($34,360) The machine should not be purchased

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