Question

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $180,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $80,000. 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 $49,000 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.
   $   
2. 
   
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: $   

Answer 1