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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 $71,000, and it would cost another $14,500 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 $31,700. The MACRS rates for the first three years are 0.3333,0.4445 and 0.1481 . (Ignore the half-year convention for the straight-line method.) Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,060. The machine would have no effect on revenues, but it is expected to save the firm $22,520 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. a. What is the Year-0 net cash flow? $ b. What are the net operating cash flows in Years 1, 2, and 3? (Note: Do not include recovery of NWC or salvage value in Year 3's calculation here.) $ Year 1: $ Year 2: $ Year 3: c. What is the additional (nonoperating) cash flow in Year 3? $ d. If the project's cost of capital is 13%, what is the NPV of the project? $ Should the chromatograph be purchased
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