You must evaluate the purchase of 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 net operating 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’s marginal federal-plus-state tax rate is 40%.

1. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow?

2. What are the project’s annual cash flows in Years 1, 2, and 3?

3. What is the incremental depraction for Years 1, 2, and 3?

4. What is the projects cash flow from sale of equpment in year 3?

5. What is the projects cash flow from liquidation of net operating working capital(spare parts inventory) in year 3?

6. What is the projects terminal lcash flow for year 3?

7. What is the projects NPV?

8. What is the projects IRR?

9. What is the projects MIRR?