Considering purchasing new spectrometer

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Reference no: EM132007898

The Ogren corporation is considering purchasing a new spectrometer for the firms R&D department. The purchase price is $70,000 and it would cost another $15,000 to modify it for the special use for which it is intended. The spectrometer which falls into the MACRS 3 year property class(year1- 33.33% , year2- 44.44% , year 3 - 14.82% and year 4 - 7.41%) is projected to be sold after three years for $30,000. Use of this equipment would result in an increased net operating working capital of $4,000 over the life of the machine. The spectrometer is expected to produce EBIT of $ 35,000 per year. The firm's tax rate is 40% and the required rate of return on the project is 11%. What is the NPV?

Reference no: EM132007898

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