3. (20 points). Real Imaginery is evaluating the the purchase of a proposed spectrometer for theR&D department. The base price is $140,000, and it would cost another $30,000 to mod-ify 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 $60,000. The applicable depreciation rates are 33%, 45%,15%, and 7%. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $50,000 per year in before-tax labor costs. The firms marginalfederal-plus-state tax rate is 35%. *********NO EXCEL PLEASE********** *********NO EXCEL PLEASE*******************NO EXCEL PLEASE**********

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3. (20 points). Real Imaginery is evaluating the the purchase of a proposed spectrometer for the R&D department. The base price is $140,000, and it would cost another $30,000 to mod-ify 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 $60,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $50,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. a. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? b. What are the project's annual cash flows in Years 1, 2, and 3? c. If the WACC is 9%, should the spectrometer be purchased? Explain