Problem 12.08 (New Project Analysis)

You must evaluate the purchase of a proposed spectrometer for the R\&D department. The purchase price of the spectrometer including modifications is $250,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $121,000. The equipment would require a $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 $53,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%. a. What is the initial investment outlay for the spectrometer after bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round vour answer to the nearest dollar. $ b. What are the project's annual 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: $ c. If the WACC is 14%, should the spectrometer be purchased