New project analysis You must evaluate a proposed spectrometer for the R&D depar
ID: 2699854 • Letter: N
Question
New project analysis
You must evaluate a proposed spectrometer for the R&D department. The base price is $170,000, and it would cost another $25,500 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 $42,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $11,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $68,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%.
Explanation / Answer
Year 0 = $170,000 + 25,500 + 11,000 = - $206,500