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You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price...

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Finance

You must evaluate the purchase of a proposed spectrometer forthe R&D department. The base price is $170,000, and it wouldcost another $42,500 to modify the equipment for special use by thefirm. The equipment falls into the MACRS 3-year class and would besold after 3 years for $42,500. The applicable depreciation ratesare 33%, 45%, 15%, and 7%. The equipment would require a $9,000increase in net operating working capital (spare parts inventory).The project would have no effect on revenues, but it should savethe firm $23,000 per year in before-tax labor costs. The firm'smarginal federal-plus-state tax rate is 40%.

  1. What is the initial investment outlay for the spectrometer,that is, what is the Year 0 project cash flow? Round your answer tothe nearest cent. Negative amount should be indicated by a minussign.
    $

  2. 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 $

  3. If the WACC is 14%, should the spectrometer be purchased?

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