USE THE DATA BELOW TO ANSWER QUESTIONS 16-17
You must evaluate the purchase of a proposed spectrometer for the R&D department. The price is $170,000. The
equipment would be sold after 3 years for $60,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%.
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%.
16. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow?
A. $110,000
B. $128,000
C. $170,000
D. $178,000
E. $210,000
17. What are the project's annual cash flows in Years 1, 2, and 3?
A. $52,440; $60,600; $88,960
B. $53,660; $65,900; $98,540
C. $72,440; $80,600; $115,440
D. $76,100; $96,500; $76,200
E. $86,100; $106,500; $99,500