New project analysis-evaluate proposed spectrometer

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Reference no: EM131583529

New project analysis You must evaluate a proposed spectrometer for the R&D department. The base price is $70,000, and it would cost another $14,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $28,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $6,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $72,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent. $ What are the project's annual cash flows in Years 1, 2, and 3? Round your answers to the nearest cent. in Year 1 $ in Year 2 $ in Year 3 $ If the WACC is 13%, should the spectrometer be purchased?

Reference no: EM131583529

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