Problem 12.08

You must evaluate the purchase of a proposed spectrometer for the R.D department. The purchase price of the spectrometer including modifications is $300,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $20,000. The equipment would require an $11,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $35,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. a. What is the initial investment outiay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollan. $ b. What are the project's annual cash flows in Years 1,2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollat. Year 1:$ Year 2: $ Year 3: 4 c. If the WACC is 13%, should the spectrometer be purchased? -Select- 9