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NEW PROJECT ANALYSIS You must evaluate the purchase of a proposed spectrometer for the R\&D depart ...
NEW PROJECT ANALYSIS You must evaluate the purchase of a proposed spectrometer for the R\&D department. The base price is \( \$ 280,000 \), and it would cost another \( \$ 42,000 \) to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for \( \$ 98 \). The applicable depreciation rates are \( 33 \%, 45 \%, 15 \% \), and \( 7 \% \). The equipment would require a \( \$ 7,000 \) increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm \( \$ 45,000 \) per year in before-tax labor costs. The firm's marginal federal-plax rate is \( 40 \% \). a. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent. Neqative amount should be indicated by a minus sign. b. 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 \( 3 \$ \) c. If the WACC is \( 12 \% \), should the spectrometer be purchased?