11.9

New-Project Analysis The president of MorChuck Enterprises has asked you to evaluate the proposed acquisition of a new chromatograph for the firm's R\&D department. The equipment's basic price is $66,000, and it would cost another $17,500 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $29,900. The MACRS rates for the first three years are 0.3333,0.4445 and 0.1481 . (Ignore the half-year convention for the straight-line method.) Use of the equipment would require an increase in net working capital (spare parts inventory) of $3,100. The machine would have no effect on revenues, but it is expected to save the firm $23,560 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 25%. Cash outflows and negative NPV value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. a. What is the Year-0 net cash flow? $ b. What are the project recurring cash flows in Years 1, 2, and 3? (Note: Do not include recovery of NWC or salvage value in Year 3 's calculation here.) \begin{tabular}{ll} Year 1: & $ \\ Year 2: & $ \\ Year 3: & $ \end{tabular} c. What is the additional (nonoperating) cash flow in Year 3 ? $ d. If the project's cost of capital is 12%, what is the NPV of the project? $ Should the chromatograph be purchased