You have been asked by the President of your company to evaluate the proposed acquisition of a new spectrometer for the firm's Ramp;D department.

You have been asked by the President of your company to evaluate the proposed acquisition of a new spectrometer for the firm's R&D department. The equipment's basic price is $70,000, and it would cost another $10,750 to modify it for special use by your firm. The spectrometer, which falls into the MARCS 3-year class, would be sold after 3 years for $30,000. Use of the equipment would require an increase in net working capital (spare parts inventory) of $4,000. The spectrometer would have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 40%.a. What is the net cost of the spectrometer (i.e., the Year-0 Net Cash Flow)b. What are the net operating cash flows in Years 1, 2 and 3?c. What is the additional (non-operating) cash flow in Year 3?d. If the project's cost of capital is 10%, should the spectrometer be purchased?e. Being a freshly-minted MBA, you have noticed that interest rates are extremely low, with 10-year money being available at a 4.5% interest rate. This means that you company could issue $60 Million in bonds at their face value (aka par) at 4.5% coupon rates with 10-year maturities. Your firm has 10 million common stock shares outstanding and $80 Million of Total Equity on its Balance Sheet. Your firm's share trade on the stock exchange for $12 per share. The firm currently has no debt on its Balance Sheet. If the firm issued the $60 Million in long-term debt, would the decision on acquisition of the spectrometer change, and if so how?