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 equipments basic price is $85,000, and it would cost another $20,000 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 $40,000. 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 $5,000. The machine would have no effect on revenues, but it is expected to save the firm $38,000 per year in before-tax operating costs, mainly labor. The firms marginal federal-plus-state tax rate is 40% and its cost of capital is 11%.

What is the Year-0 net cash flow?

		($105,000)
		($85,000)
		($110,000)
		($81,000)
		($89,000)

What is the after-tax salvage value cash flow of the new machine at the end of project's life?

		$40,000
		$20,519
		$27,112
		$30,000
		$19,332

What is the year 1 operating cash flow?

$7,447

$1,802

$36,799

$34,997

$26,332

What is the last year's total cash flow without including the operating cash flow?

		$61,132
		$44,555
		$29,020
		$7,447
		$32,112

What is the NPV of this project?

		$1,359
		$1,509
		$29,400
		$12,000
		($6,700)