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

eBook

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $110,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $37,000. The equipment would require a $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $65,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%.

  1. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.
    $  

  3. What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.
    Year 1: $  
    Year 2: $  
    Year 3: $  

  5. If the WACC is 11%, should the spectrometer be purchased?
    -Select-YesNoItem 5
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