This is problem 12-8 on page 429 of your text: You must evaluate the purchase of a spectrometer for the R&D department. The base price is $140,000, and it would cost another $30,000 to modify the equpment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $60,000. The applicable depreciation rates are 33%, 45%, 15%, and 7% as discussed in Appendix 12A. 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%. The firm's WACC ("hurdle rate" or "required rate of return") is 12% Question 2 (1 point) Given the information in the problem: What is the project's incremental depreciation (depreciation expense) for year 1? O ($140,000) ($56,100) $113,900 ) ($25,500)

Question
This is problem 12-8 on page 429 of your text:
You must evaluate the purchase of a spectrometer for the R&D department. The
base price is $140,000, and it would cost another $30,000 to modify the equpment
for special use by the firm. The equipment falls into the MACRS 3-year class and
would be sold after 3 years for $60,000. The applicable depreciation rates are 33%,
45%, 15%, and 7% as discussed in Appendix 12A. 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%.
The firm's WACC ("hurdle rate" or "required rate of return") is 12%
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Question 2 (1 point)
Given the information in the problem:
What is the project's incremental depreciation (depreciation expense) for year 1?
O ($140,000)
($56,100)
$113,900
) ($25,500)
View transcribed image text
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Transcribed Image Text

This is problem 12-8 on page 429 of your text: You must evaluate the purchase of a spectrometer for the R&D department. The base price is $140,000, and it would cost another $30,000 to modify the equpment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $60,000. The applicable depreciation rates are 33%, 45%, 15%, and 7% as discussed in Appendix 12A. 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%. The firm's WACC ("hurdle rate" or "required rate of return") is 12%

Question 2 (1 point) Given the information in the problem: What is the project's incremental depreciation (depreciation expense) for year 1? O ($140,000) ($56,100) $113,900 ) ($25,500)