New project analysis You must evaluate a proposed spectrometer for the R&D; depa
ID: 2684873 • Letter: N
Question
New project analysis You must evaluate a proposed spectrometer for the R&D; department. The base price is $90,000, and it would cost another $13,500 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 $40,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $9,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $42,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. 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.Explanation / Answer
Base price (90000)
Modification (13,500)
Increase in NOWC (9,000)
Cash outlay for new machine (112500)