You are asked to evaluate the proposed acquisition of a new machine to reduce labor costs for Victoria Company (VC). The machine's basic price is $70,000, and it would cost another $25,000 to modify it for special use by VC. The Machine, which falls into the MACRS 3-year class, would be sold after 3 years for $30,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000 which will be recouped at the end. The machine would have no effect on revenues, but it is expected to save the firm $30,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax is 25%.

a. What is the Year-0 cash flow?

b. What are the cash flows from Years 1, 2, and 3?

c. What is the additional (nonoperating) cash flow in Y3?

d. If the project's cost of capital is 10%, should the chromatograph be purchased?