You must evaluate the purchase of a proposed spectrometer for the R D department The base price is $250,000, and it would cost another $37,500 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 $112,500 The applicable depreciation rates are 33 , 45 , 15 , and 7 The equipment would require an $8,000 increase in net operating working capital (spare parts inventory) The project would have no effect on revenues, but it should save the firm $62,000 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 Open spreadsheet Base price $250,000 Additional modification costs $37,500 Before tax salvage proceeds $112,500 Change in NOWC $8,000 Before tax labor cost savings $62,000 WACC 11 00 Tax rate 40 00 Yr 0 Yr 1 Yr 2 Yr 3 Depreciation rates 0 33 0 45 0 15 Yr 0 Yr 1 Yr 2 Yr 3 Base price Modification costs NOWC Before tax labor cost savings $62,000 00 $62,000 00 $62,000 00 Depreciation Operating income Taxes After tax operating income Add back depreciation $0 00 $0 00 $0 00 Operating cash flows Termination cash flows Before tax salvage proceeds $112,500 00 Tax on salvage value NOWC recapture $8,000 00 Project cash flows NPV Project acceptance Formulas Yr 0 Yr 1 Yr 2 Yr 3 Base price N A Modification costs N A NOWC N A Before tax labor cost savings $62,000 00 $62,000 00 $62,000 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 $112,500 00 Tax on salvage value N A NOWC recapture $8,000 00 Project cash flows N A N A N A N A NPV N A Project acceptance N 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 $ 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 $ If the WACC is 11 , should the spectrometer be purchased

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You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $250,000, and it would cost another $37,500 to

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $250,000, and it would cost another $37,500 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 $112,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $8,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $62,000 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.

Open spreadsheet

Base price	$250,000
Additional modification costs	$37,500
Before-tax salvage proceeds	$112,500
Change in NOWC	$8,000
Before-tax labor cost savings	$62,000
WACC	11.00%
Tax rate	40.00%

	Yr. 0	Yr. 1	Yr. 2	Yr. 3
Depreciation rates		0.33	0.45	0.15


	Yr. 0	Yr. 1	Yr. 2	Yr. 3
Base price
Modification costs
NOWC

Before-tax labor cost savings		$62,000.00	$62,000.00	$62,000.00
Depreciation
Operating income
Taxes
After-tax operating income
Add back depreciation		$0.00	$0.00	$0.00
Operating cash flows

Termination cash flows
Before-tax salvage proceeds				$112,500.00
Tax on salvage value
NOWC recapture				$8,000.00
Project cash flows

NPV
Project acceptance?

Formulas
	Yr. 0	Yr. 1	Yr. 2	Yr. 3
Base price	#N/A
Modification costs	#N/A
NOWC	#N/A

Before-tax labor cost savings		$62,000.00	$62,000.00	$62,000.00
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				$112,500.00
Tax on salvage value				#N/A
NOWC recapture				$8,000.00
Project cash flows	#N/A	#N/A	#N/A	#N/A

NPV	#N/A
Project acceptance?	#N/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.

$
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 $
If the WACC is 11%, should the spectrometer be purchased?