Discussion:
New-Project Analysis The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firm's R&D department The equipment's basic price is $150,000, and it would cost another $22,500 to modifyit for special use by your firm.
The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $67,500. Use of the equipment would require an increase in net working capital (spare parts inventory) of $6,000. The machine wouldhave no effect on revenues, but it is expected to save the firm $45,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 30%.
a. What is the Year-0 net cash flow? If the answer is negative, use minussign. $
b.What are the net operating cash flows in Years 1, 2, and 3? Round your answers to the nearest dollar. Year 1 $ Year 2 $ Year 3 $
c.What is the additional (nonoperating) cash flow in Year 3? Round your answer to the nearest dollar. $ d.If the project's cost of capital is 10%, should the chromatograph be purchased?