Equipment

• base price : $140,000, but it would cost another $30,000 to modify the equipment
• will be depreciated over 3 years using straight-line method
• will be sold for $60,000 after 3 years
• would require $8,500 increase in net working capital
• should help the firm to save $50,000 per year.

You must evaluate the purchase of a spectrometer for a firm.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 will be depreciated to zero value over the 3 years using prime cost (straight line) method.The machine would be sold after 3 years for $60,000.The machine would require a $8,500 increase in net working capital and fully recover at the end of its 3-year life.The equipment should save the firm $50,000 per year in before-tax labor costs.

Below shows the forecasted sales revenues, variable cost and fixed cost.