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You have been asked by the president of your company to evaluate the proposed acquisition...

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Finance

You have been asked by the president of your company to evaluate the proposed acquisition of a spectrometer for the firms R&D department. The equipments base price is $140,000, and it would cost another $30,000 to modify it for special use by your firm. The spectrometer, which falls into the MACRS three year class, would be sold after three years for $60,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $8,000. The spectrometer would have no affect on revenues, but it is expected to save the firm $50,000 per year in before tax operating costs, mainly labor. The firms marginal tax rate is 40 percent. Calculate the incremental operating cash flows in Years 1, 2 and 3 Calculate after tax cash flow from the sale of the new machine in year 3. If the projects required rate of return is 12 percent, calculate the NPV and IRR

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