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The research and development division of a large corporation is considering the purchase of a new tunneling X-ray microscope for $200,000.
4. The research and development division of a large corporation is considering the purchase of a new tunneling X-ray microscope for $200,000. The net benefits from gains in materials engineering is projected to be $40,000 in real dollars at the end of the first year increasing by an arithmetic gradient of $10,000 per year in real dollars for the first 5 year life of the X-ray and leveling off at $80,000 per year in years 6 and 7. The unit will be depreciated under MACRS. Due to increasing advances in tunneling X-ray microscope technology, the unit will have $0 salvage value at the end of its 7 year life. During the 7 year analysis period, inflation is expected to be at 4.0% per year. The corporation has a combined state and federal 40% income tax rate. The corporation requires a 20% after-tax market rate of return on its research and development investments. Should the X-ray unit be purchased?
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