Equipment Basic Price Cost to Modify Total Cost for Spect Sold after (3) Years Working Capital

Cost Saving per Year Tax Rate MACRS Year 1 MACRS Year 2 MACRS Year 3

$ 70,000.00 $ 15,000.00 $ 85,000.00 $ 30,000.00 $ 4,000.00 $ 25,000.00 40% 33% From Q&A 45% From Q&A 15% From Q&A It is the combined price of the Basic price and Modification cost as this is the total cost for the new spectrometer.

I will give you the MACRS 3 yrs. allowance percentage so that you do .45 and year 3 is .15

Part A Net Cost= Part B

$ (89,000.00)

Self Test #1 similarity

Year 1 After Tax Savings Depreciation Depreciation Tax Savings Operating Cash Flow $ 15,000.00 $ 28,050.00 $ 11,220.00 $ 26,220.00

Year 2 $ 15,000.00 $ 38,250.00 $ 15,300.00 $ 30,300.00

Year 3 $ 15,000.00 $ 12,750.00 $ 5,100.00 $ 20,100.00

After Tax+Depr

Part C Salvage Value Tax on Salvage Value Net Working Capital Recovery Termination Cash Flow Book Value= Total Depreciation Difference Sales Price Less Book Values Tax at 40% Difference

$ 30,000.00 $ 12,000.00 $ 4,000.00 $ 22,000.00 $ $ $ $ $ $ $ 85,000.00 79,050.00 5,950.00 30,000.00 24,050.00 9,620.00 14,430.00

Year 1 + Year 2 + Year 3 Depreciation Book Value- Total Depreciation From Christine Question and Answer

Cash Flow=

$ 24,380.00

Sale Price-Tax Income+Cap Recovery

Part D Project Capital= Buy or Not=

10% NO Year 0 Year 1 $ 26,220.00 Year 2 $ 30,300.00 Year 3 $ 44,480.00

Cash Flow

$ (89,000.00)

In Year 3, we needed to ad additional cost as shown in c NPV of Project= ($6,094.39)

Since the NPV is a negative value, the project should be scrapped, as it is a losing proposition. If the NPV was greater then it will be beneficial to the company.