1. 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 NPV of this project?

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