Intro

You're evaluating a new electron microscope for the QA $($quality assurance$)$ unit. The

microscope will cost $$24,000$ to buy and another $$2,000$ to install, and will be sold for

$$1,800$ after $3$ years. It falls into the $3-$year MACRS class, with depreciation rates as

follows:

The microscope will require an inventory of spare parts worth $$5,000.$ The equipment will

not increase revenue, but will save the company $$10,000$ in labor costs each year.

Your company's marginal tax rate $($federal plus state$)$ is $34\%$ and the appropriate cost of

capital for this project is $13\%.$

$1.$ What is the incremental cash flow in year $1?$

$2.$ What is the incremental cash flow in year $2?$

$3.$ What is the net salvage value at the end of year $3?$

$4.$ What is the incremental cash flow in year $3?$

$5.$ What is the NPV of this project?