Question
The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of a new chromatograph for the firm's R&D department. The
The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of a new chromatograph for the firm's R&D department. The equipment's basic price is $69,000, and it would cost another $16,500 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 $28,100. 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 $3,940. The machine would have no effect on revenues, but it is expected to save the firm $22,570 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 25%. Cash outflows and negative NPV value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.
What is the Year-0 net cash flow?
What are the project recurring cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $
What is the additional (nonoperating) cash flow in Year 3? $
If the project's cost of capital is 13%, what is the NPV of the project?
$ Should the chromatograph be purchased? -Select- Yes or No
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