Problem 13-7 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 firms R&D department. The equipment's basic price is $170,000, and it would cost another $42,500 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 $76,500. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. Use of the equipment would require an increase in net working capital (spare parts inventory) of $10,200. The machine would have no effect on revenues, but it is expected to save the firm $51,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 30%.

A)What is the Year-0 net cash flow? If the answer is negative, use minus sign. ________$

B)What are the net operating cash flows in Years 1, 2, and 3? Round your answers to the nearest dollar.

Year 1	______$
Year 2	______$
Year 3	______$

c)What is the additional (nonoperating) cash flow in Year 3? Round your answer to the nearest dollar. ________$