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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

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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. On page 7 of the handout, do example #4, as follows: part A-calculate the initial cash flow part B - calculate all of the operating cash fiows part C calculate the terminal cash flow part D-calculate BOTH the net present value (NPV) and the internat rate of ratum (IRR) Base your investment decision on BOTH the NPV and the IRR

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