You must evaluate a proposed spectrometer for the R&D department. The base price

Question

You must evaluate a proposed spectrometer for the R&D department. The base price is $120,000, and it would cost another $30,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $54,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $13,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $25,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. What are the project's annual cash flows in Years 1, 2, and 3? Round your answers to the nearest cent.

There are other posts similar to this, but I am using the steps that they follow, and I am not getting the correct answer. Please include all calculations.

Explanation / Answer

INITIAL INVESTMENT

CASH FLOW IN YEAR 1 TO YEAR3

TAX SAVING IN DEPERICATION

$49500 * 0.40

$67500 * 0.40

$22500 * 0.40

TERMINAL CASH FLOW

# TAX ON SALVAGE VALUE ($54000 - $10500) 0.40 = $17400

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