NEW PROJECT ANALYSIS You must evaluate a proposed spectrometer for the R& D Depa

Question

NEW PROJECT ANALYSIS You must evaluate a proposed spectrometer for the R& D Department. The base price is $ 140,000, and it would cost another $ 30,000 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 $ 60,000. The applicable depreciation rates are 33%, 45%, 15%, and 7% as discussed in Appendix 12A. The equipment would require an $ 8,000 increase in working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $ 50,000 per year in before- tax labor costs. The firm

Explanation / Answer

Base price ($140,000)
Modification (30,000)
Increase in NOWC (8,000)
Cash outlay for new machine ($178,000)
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