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 $270,000, and it wouldcost another $67,500 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 $67,500. 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 $36,000 per year in before-tax labor costs. The firm'smarginal 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 tothe nearest cent. Negative amount should be indicated by a minussign.
What are the project's annual cash flows in Years 1, 2, and 3?Round your answers to the nearest cent.

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3.5 Ratings (418 Votes)

Answer a Calculation of initial investment outlay for the Spectrometer Base Price 270000 AddModification Cost 67500 Add Increase in net working capital 9000 Total initial investment 346500 b Calculation of See Answer

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