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a Example #4 New Project Analysis You have been asked by the president of your company to evaluate the proposed acquisition of a new spectrometer
a Example #4 New Project Analysis You have been asked by the president of your company to evaluate the proposed acquisition of a new spectrometer for the firm's R&D Department. The equipment's basic price is $70,000 and it would cost another $15,000 to modify it for special use by your firm. The spectrometer, which has a MACRS 3-year recovery period, would be sold after 3 years for $30,000. Use of the spectrometer would increase the firm's annual revenues by $15,000. However, because of its high tech systems, it is expected to increase the firm's annual before-tax operating costs (mainly labor) by $8,000. The spectrometer would require an increase in net working capital (inventory) of $4,000. The firm's marginal federal-plus-state tax rate is 40 percent. A. What is the initial cash flow? B. What are the operating cash flows? C. What is the terminal cash flow? D. If the project's cost of capital is 10 percent, should be spectrometer be purchased
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