New$-$Project Analysis

The president of your company, MorChuck Enterprises, has asked you to evaluate the

proposed acquisition of a new chromatograph for the firm's R&D department. The

equipment's basic price is $$80,000,$ and it would cost another $$14,000$ to modify it for

special use by your firm. The chromatograph, which falls into the MACRS $3-$year class,

would be sold after $3$ years for $$28,200.$ The MACRS rates for the first three years are

$0\mathrm{.}3333,0\mathrm{.}4445$ and $0\mathrm{.}1481.($Ignore the half$-$year convention for the straight$-$line

method.$)$ Use of the equipment would require an increase in net working capital $($spare

parts inventory$)$ of $$3,800.$ The machine would have no effect on revenues, but it is

expected to save the firm $$25,400$ per year in before$-$tax operating costs, mainly labor.

The firm's marginal federal$-$plus$-$state tax rate is $25\%.$ Cash outflows and negative NPV

value, if any, should be indicated by a minus sign. Do not round intermediate

calculations. Round your answers to the nearest dollar.

a$.$ What is the Year$-0$ net cash flow?

$

b$.$ What are the net operating cash flows in Years $1,2,$ and $3?($Note: Do not include

recovery of NWC or salvage value in Year $3\text{'}$s calculation here.$)$

$

Year $1$:

$

Year $2$:

$

Year $3$:

c$.$ What is the additional $($nonoperating$)$ cash flow in Year $3?$

$

d$.$ If the project's cost of capital is $10\%,$ what is the NPV of the project?