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What is the net cost of the spectrometer

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Reference no: EM132755907

You have been asked by the president of your company to evaluate the proposed acquisition of a spectrometer for the firm's R&D department. The equipment's base price is $140,000, and it would cost another $30,000 to modify it for special use by your firm. The spectrometer, which falls into the MACRS 3-year class, would be sold after 3 years for $60,000. Use of equipment would require an increase in net working capital (spare parts inventory) of $8,000. The spectrometer would have no effect on revenues, but it is expected to save the firm $50,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal plus-state tax rate is 40 percent.

Problem a. What is the net cost of the spectrometer? (i.e. What is the Year 0 net cash flow?)

Problem b. What are the operating cash flows in Years 1, 2, and 3?

Problem c. What is the terminal year cash flow?

Reference no: EM132755907

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