Carlton Co. is considering adding a robotic paint sprayer to its production line. The sprayer's base...

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Carlton Co. is considering adding a robotic paint sprayer to itsproduction line. The sprayer's base price is $1,110,000, and itwould cost another $23,500 to install it. The machine falls intothe MACRS 3-year class (the applicable MACRS depreciation rates are33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3years for $654,000. The machine would require an increase in networking capital (inventory) of $9,000. The sprayer would not changerevenues, but it is expected to save the firm $390,000 per year inbefore-tax operating costs, mainly labor. Campbell's marginal taxrate is 30%.
What is the Year 0 net cash flow?
$

What are the net operating cash flows in Years 1, 2, and 3? Donot round intermediate calculations. Round your answers to thenearest dollar.
Year 1 $
Year 2 $
Year 3 $

What is the additional Year 3 cash flow (i.e, the after-taxsalvage and the return of working capital)? Do not roundintermediate calculations. Round your answer to the nearestdollar.
$

If the project's cost of capital is 10 %, what is the NPV ofthe project? Do not round intermediate calculations. Round youranswer to the nearest dollar.
$

Should the machine be purchased?
-Select-Yes/No

Answer & Explanation Solved by verified expert

4.3 Ratings (855 Votes)

aInitial Investment Outlay ie Year 0 cash flow Base Price Modification cost Increase in Working Capital 111000023500 9000 1142500 since outflow bAnnual Cash Flows Year 1 2 3 Savings in Cost 390000 See Answer

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