Considering purchasing new spectrometer for firm

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Reference no: EM132011156

The Ogren Corporation is considering purchasing a new spectrometer for the firm’s 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 (Year 1 - 33.33%, Year 2 - 44.44%, Year 3 - 14.82%, and Year4 - 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? (Hint:. Remember the three components we talked about in class: OCF, NOWC, CAPEX. Consider each component for each year, keeping in mind that certain components are equal to 0 for certain years.)

Reference no: EM132011156

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