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CSI PROJECT 3 You have been asked by Dr. Hauser, the President of the CSI Crime Lab to evaluate the. 1 answer below » CSI PROJECT 3 You have been asked by Dr. Hauser, the President of the CSI Crime Lab to evaluate the proposed acquisition of a spectrometer for the crime lab. The equipments base price is $120,000, and it would cost another $20,000 to modify it for special use by the lab. The spectrometer, which falls into the MACRS 3-year class, would be sold after three years for $57,000. Use of the spectrometer would require an increase in net working capital (spare parts inventory) of $8,000. The spectrometer would have no effect on the labs revenues, but it is expected to save the lab $60,000 per year in View complete question » CSI PROJECT 3 You have been asked by Dr. Hauser, the President of the CSI Crime Lab to evaluate the proposed acquisition of a spectrometer for the crime lab. The equipments base price is $120,000, and it would cost another $20,000 to modify it for special use by the lab. The spectrometer, which falls into the MACRS 3-year class, would be sold after three years for $57,000. Use of the spectrometer would require an increase in net working capital (spare parts inventory) of $8,000. The spectrometer would have no effect on the labs revenues, but it is expected to save the lab $60,000 per year in before-tax operating costs, mainly labor. The crime labs marginal tax rate is 30 percent. For this problem, use the following MACRS table for the recovery allowance: Property Class 3-Year 33% 45% 15% 7% Year 1 2 3 4 a) Prepare the Pro forma project net working capital and capital spending requirements. b) Prepare the Pro forma project income statement. c) Prepare the Pro forma project cash flows d) If the projects required return is 10%, should the spectrometer be purchased? e) What happens if the pre-tax labor savings are only $45,000 per year? f) Write a 1 page memo to the President of the CSI Crime Lab detailing your recommendation. Attach your pro forma financial statements in an Appendix of Calculations. The memo and calculations are due in class on Friday, December 5th. Document Preview: CSI PROJECT 3
You have been asked by Dr. Hauser, the President of the CSI Crime Lab to evaluate the proposed acquisition of a spectrometer for the crime lab. The equipment’s base price is $120,000, and it would cost another $20,000 to modify it for special use by the lab. The spectrometer, which falls into the MACRS 3-year class, would be sold after three years for $57,000. Use of the spectrometer would require an increase in net working capital (spare parts inventory) of $8,000. The spectrometer would have no effect on the lab’s revenues, but it is expected to save the lab $60,000 per year in before-tax operating costs, mainly labor. The crime lab’s marginal tax rate is 30 percent.
For this problem, use the following MACRS table for the recovery allowance:
Property Class
Year
3-Year
1
33%
2
45%
3
15%
4
7%
Prepare the Pro forma project net working capital and capital spending requirements.
Prepare the Pro forma project income statement.
Prepare the Pro forma project cash flows
If the project’s required return is 10%, should the spectrometer be purchased?
What happens if the pre-tax labor savings are only $45,000 per year?
Write a 1 page memo to the President of the CSI Crime Lab detailing your recommendation. Attach your pro forma financial statements in an Appendix of Calculations. The memo and calculations are due in class on Friday, December 5th.
0
1
2
3
Pro forma Project Net Working Capital and Capital Spending Requirements
YEAR
NWC
Change in NWC
Capital Spending
Depreciation
Book Value
After-tax salvage
Net Capital Spending
Salvage
0
1
2
3
Pro forma Project Cash Flows
YEAR
Operating Cash Flow
Change in NWC
Net Capital Spending
Project Cash Flow
NPV
IRR
0
1
2
3
Pro forma Project Income Statement
YEAR
Sales
Costs
Depreciation
EBIT
Taxes
Net Income
Operating Cash Flow Attachments: Q-Attachment……..
