Question
3. You are required to evaluate a proposed spectrometer for the R&D department. The base price is $140,000 and it would cost another $30,000 to
3. You are required to evaluate a proposed spectrometer for the R&D department. The base price is $140,000 and it would cost another $30,000 to modify the equipment for special use by the firm. The equipment would require an $8,000 increase in working capital. The project would have no effect on revenues, but it should save the firm $50,000 per year before-tax labor cost (operating cost). The equipment has a 5-year useful life and will be depreciated fully using straight line depreciation method. At the end of 4 years, the equipment will be sold for $20,000. The firms marginal tax rate is 40 percent. Compute the terminal year cash flow for the equipment. (terminal year is year 4)
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