Problem $11-07$

New$-$Project Analysis

The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firm$$s R&D department. The equipment's basic price is $$130,000,$ and it would cost another $$32,500$ to modify it for special use by your firm. The chromatograph, which falls into the MACRS $3-$year class, would be sold after $3$ years for $$32,500.$ The MACRS rates for the first $3$ years are $0\mathrm{.}3333,0\mathrm{.}4445$ and $0\mathrm{.}1481.$ Use of the equipment would require an increase in net working capital $($spare parts inventory$)$ of $$6,500.$ The machine would have no effect on revenues, but it is expected to save the firm $$39,000$ per year in before$-$tax operating costs, mainly labor. The firm's marginal federal$-$plus$-$state tax rate is $35\%.$

What is the Year $0$ net cash flow? If the answer is negative, use parentheses.

$

$169000$

What are the net operating cash flows in Years $1,2,$ and $3?$ Do not round intermediate calculations. Round your answers to the nearest dollar.

Year $1$ $

Year $2$ $

Year $3$ $

What is the additional $($nonoperating$)$ cash flow in Year $3?$ Do not round intermediate calculations. Round your answer to the nearest dollar.

$

If the project's cost of capital is $10\%,$ should the chromatograph be purchased?

No