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Intro Due to high demand for wood, San Lorenzo Lumber is considering buying a new timber cutting machine to add to its existing stock. - The machine will cost \\( \\$ 330,000 \\) to purchase and \\( \\$ 20,000 \\) for shipping and installation. Last year, the firm cleared an unused area in its timber mill to make space for the machine, at a cost of \\( \\$ 8,000 \\). - The new cutting machine will allow the company to sell an additional 140,000 pieces of wood per year, at a price of \\$3 per plece. Variable costs, including timber, electricity and labor, are expected to add up to \70 of sales. - To make best use of the new machine, the company will need to increase its inventory of timber logs by \\( \\$ 25,000 \\). Since the firm uses trade credit when purchasing raw timber, accounts payable will increase by \\( \\$ 12,000 \\). - The cutting machine is expected to last 4 years and will then be sold for \\( \\$ 35,000 \\). It falls into the 3 -year MACRS class, with depreciation rates as follows: The firm has a marginal tax rate (federal and state) of \34. Part 1 B - Attempt \\( 2 / 5 \\) for 10 pts. What is the initial (year-0) project cash flow? Choose the right sign. Correct r At the beginning of the project, EBIT and depreciation are both zero. Initial capital expenditure is the cost of purchase and installation: CAPEX \\( =330,000+20,000=350,000 \\) This is the amount that can be depreciated over time. The cost of clearing the space for the machine is a sunk cost and should not be considered anymore. The required inventory of wood creates a positive change in net operating working capital, while the increase in accounts payable decreases net operating working capital: \\( \\triangle \\mathrm{NOWC}= \\) - \\( \\mathrm{Im} \\) wentory \\( -\\triangle \\mathrm{Accounts} \\) payable \\[ \\begin{array}{l} =25,000-12,000 \\\\ =13,000 \\end{array} \\] \\( P C F_{0}=N O P A T+D E P-C A P E X-\\triangle N O W C \\) \\( = \\) EBIT \\( (1-1)+ \\) Dep. - CAPEX - \\( \\triangle N O W C \\) \\( =0+0-350,000-13,000 \\) What is the project cash flow in year 1 ? Part 3 What is the project cash flow in year 2

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