You have been asked by the president of your company to evaluate the proposed acquisition of a spectrometer for the firms R&D department. The equipments base price is $140,000, and it would cost another $30,000 to modify it for special use by your firm. The spectrometer, which falls into the MACRS 3-year class, would be sold after three years for $60,000. (See Table 10A.2 at the end of Chapter 10 for MACRS recovery allowance percentages.) Use of the equipment would require an increase in net working capital (spare parts inventory) of $8,000. The spectrometer would have no effect on revenues, but it is expected to save the firm $50,000 per year in before-tax operating costs, mainly labor. The firms marginal tax rate is 40 percent.

If the projects required rate of return is 12 percent, should the spectrometer be purchased?