You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $200,000, and it would cost another $50,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $90,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $10,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $79,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. X Open spreadsheet a. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent. Negative amount should be indicated by a minus sign. b. What are the project's annual cash flows in Years 1, 2, and 3? Round your answers to the nearest cent. In Year 1 $ In Year 2 $ In Year 3 $ c. If the WACC is 13%, should the spectrometer be purchased? Additional modification costs Base price Before-tax salvage proceeds $200,000 $50,000 $90,000 Change in NOWC $10,000 Before-tax labor cost savings $79,000 WACC 13.00% Tax rate 40.00% Yr. 0 Yr. 1 Yr. 2 Depreciation rates 0.33 0.45 Yr. O Yr. 1 Yr. 2 Base price Modification costs NOWC Before-tax labor cost savings Depreciation Operating income Taxes After-tax operating income Add back depreciation Operating cash flows Termination cash flows Before-tax salvage proceeds Tax on salvage value $79,000.00 $79,000.00 Yr. 3 Yr. 3 0.15 $79,000.00 $0.00 $0.00 $0.00 $90,000.00 After-tax operating income Add back depreciation Operating cash flows Termination cash flows Before-tax salvage proceeds Tax on salvage value NOWC recapture Project cash flows NPV $0.00 $0.00 $0.00 $90,000.00 $10,000.00 Project acceptance? Formulas Yr. O Yr. 1 Yr. 2 Yr. 3 Base price #N/A Modification costs #N/A NOWC #N/A Before-tax labor cost savings $79,000.00 $79,000.00 $79,000.00 Depreciation #N/A #N/A #N/A Operating income #N/A #N/A #N/A Taxes #N/A #N/A #N/A After-tax operating income #N/A #N/A #N/A Add back depreciation #N/A #N/A #N/A Operating cash flows #N/A #N/A #N/A Termination cash flows Before-tax salvage proceeds Tax on salvage value $90,000.00 #N/A NOWC recapture $10,000.00 Project cash flows #N/A #N/A #N/A #N/A NPV #N/A Project acceptance? #N/A