Question

Problem 11-07 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 $130,000, and it would cost another $19,500 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 $45,500. The MACRS rates for the first 3 years are 0.3333, 0.4445 and 0.1481. Use of the equipment would require an increase in net working capital (spare parts inventory) of $6,500. The machine would have no effect on revenues, but it is expected to save the firm $39,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 40%. What is the Year 0 net cash flow? If the answer is negative, use parentheses. $ What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar. Year 1 $ Year 2 $ Year 3 $ What is the additional (nonoperating) cash flow in Year 3? Do not round intermediate calculations. Round your answer to the nearest dollar. $ If the project's cost of capital is 12%, should the chromatograph be purchased? -Select-YesNoItem 6

Answer 1