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You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $260,000, and it would cost another $52,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $130,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $10,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $30,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. X Open spreadsheet a. What is the initial investment outlay for the spectrometer, that is, what is the Year O project cash flow? Round your answer to the nearest cent. Negative amount should be indicated by a minus sign. $ b. What are the project's annual cash flows in Years 1, 2, and 3? Round your answers to the nearest cent In Year 1$ In Year 2 $ In Year 3 $ c. If the WACC is 12%, should the spectrometer be purchased? a Yes No Next Back $260,000 $52,000 $130,000 $10,000 $30,000 12.00% 40.00% 8 9 Yr.o Yr. 1 Yr 2 Yr 3 0.33 0.45 0.15 Yr. O Yr. 1 Yr. 2 Yr. 3 3 Base price 4 Additional modification costs 5 Before-tax salvage proceeds 6 Change in NOWC 7 Before-tax labor cost savings WACC Tax rate 10 11 12 Depreciation rates 13 14 15 16 Base price 17 Modification costs 18 NOWC 19 20 Before-tax labor cost savings 21 Depreciation 22 Operating income 23 Taxes 24 After-tax operating income 25 Add back depreciation 26 Operating cash flows 27 28 Termination cash flows 29 Before-tax salvage proceeds 30 Tax on salvage value 31 NOWC recapture 32 Project cash flows 33 34 NPV 35 Project acceptance? $30,000.00 $30,000.00 $30,000.00 $0.00 $0.00 $0.00 $130,000.00 $10,000.00 36