Problem 13-7 New-Project Analysis

You have been asked by the president of your company to evaluate the proposed acquisition of a new chromatograph for the firm's R&D department. The equipment's basic price is $180,000, and it would cost another $27,000 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), would be sold after 3 years for $45,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $10,800. The chromatograph would have no effect on revenues, but it is expected to save the firm $54,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 35%.

What is the Year-0 net cash flow? $

What are the net operating cash flows in Years 1, 2, and 3? Round your answers to the nearest dollar.

Year 1	$
Year 2	$
Year 3	$

What is the additional (nonoperating) cash flow in Year 3? Round your answer to the nearest dollar. $

If the project's cost of capital is 13%, what is the NPV of the project? Round your answer to the nearest dollar. $ should the chromatograph be purchased? -Select-YesNoItem 7