Problem:
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 $190,000, and it would cost another $47,500 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $66,500. Use of the equipment would require an increase in net working capital (spare parts inventory) of $9,500. The machine would have no effect on revenues, but it is expected to save the firm $76,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 30%.
Required:
Question 1: What is the Year-0 net cash flow? If the answer is negative, use minus sign.
Question 2: What are the net operating cash flows in Years 1, 2, and 3?
Question 3: What is the additional (non-operating) cash flow in Year 3?
Note: Provide support for your rationale.