What is the initial investment outlay for the spectrometer

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Reference no: EM132014258

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $200,000, and it would cost another $40,000 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 $100,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require a $5,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $55,000 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. Negative amount should be indicated by a minus sign. $ 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: EM132014258


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