New-Project Analysis The

New-Project Analysis The

New-Project Analysis The president of the company you work for has asked you to evaluate the proposed acquisition of a new chromatograph for the firms R&D department The equipment’s basic price is $90,000, and it would cost another $13,500 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $40,500. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,500. The machine would have no effect on revenues, but it is expected to save the firm $36,000 per year in before-tax operating costs, mainly labor. The firm’s marginal federal-plus-state tax rate is 35%.

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