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 10.A.2 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 cost, mainly labor. The firms tax rate is 40 percent.

1. What is the initial investment outlay associated with this project? (That is, what is the Year 0 net cash flow?
2. What are the incremental operating cash flow in years 1, 2, and 3?
3. What is the terminal cash flow in year 3?
4. If the project required rate of return is 12 percent, should the spectrometer be purchased?

Please help answer in excel.

10A.2 Recovery Allowance Percentages for Table Personal Property Class of Investment Ownershijp Year 3-Year 5-Year 7-Year 10-Year 33% 20% 14% 10% 32 25 18 15 19 17 4 12 13 12 9 4 9 10 6 100% 100% 100% 100%