3 Base price $300,000 $60,000 $90,000 $12,000 $52,000 4 Additional modification costs Before-tax salvage proceeds 6 Change in NOWC Before-tax labor cost savings 8 WACC 11.00% Tax rate 40.00% 10 11 Yr. 0 Yr. 2 Yr. 1 Yr. 3 12 Depreciation rates 0.33 0.45 0.15 13 14 15 Yr. 1 Yr. 3 Yr. 0 Yr. 2 Base price 17 Modification costs 18 NOWC 16 $300,000.00 19 20 Before-tax labor cost savings Depreciation 22 $52,000.00 $52,000.00 $52,000.00 21 Operating income 23 Taxes 24 After-tax operating income 25 Add back depreciation 26 Operating cash flows $0.00 $0.00 $0.00 27 Excel Online Structured Activity: New project analysis You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $300,000, and it would cost another $60,000 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 $90,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $12,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $52,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. X Open spreadsheet 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. Negative amount should be indicated by a minus sign S 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 11%, should the spectrometer be purchased