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You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $70,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $22,000. The equipment would require an $11,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $28,000 per year in beforetax labor costs. The firm's marginal federalplusstate tax rate is 25%.

a:
Cashflow( outflow)= invstment in machine + increase in working capital
=70000+11000 =81000
c:
Cash inflow Year1= Saving in cost*(1tax rate)
=28000*(1.25)=21000
Cash inflow Year2= Saving in cost*(1tax rate)
=28000*(1.25)=21000
Cash inflow Year3= Saving in cost*(1tax rate) +aftr tax salvage value + decrease in working capital
=28000*(1.25) + 22000*(1.25)+11000 =48500
e:
We need to calculate npv at 11%
NPV= PV of cash inflow PV of cash outflow
[21000 / (1 + 0.11)] + [21000 / (1 + 0.11)^{2}] + [48500 / (1 + 0.11)^{3}]  81000
=11424.07
since npv is negative, the machine should not be purchased.
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