New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The...

3.5 Ratings (306 Votes)

Time line		0	1	2	3



Cost of new machine		-1117500
Initial working capital		-15000
=Initial Investment outlay		-1132500

3 years MACR rate			33.33%	44.45%	14.81%	7.41%

Savings			481000	481000	481000


-Depreciation	=Cost of machine*MACR%		-372462.75	-496728.8	-165501.8	82806.75	=Salvage Value

=Pretax cash flows			108537.25	-15728.75	315498.25
-taxes	=(Pretax cash flows)*(1-tax)		70549.2125	-10223.69	205073.86
+Depreciation			372462.75	496728.75	165501.75
=after tax operating cash flow			443012	486505	370576

reversal of working capital					15000

+Proceeds from sale of equipment after tax	=selling price* ( 1 -tax rate)				367250
+Tax shield on salvage book value	=Salvage value * tax rate				28982.363	additional cash flow=	367250+28982=396232
=Terminal year after tax cash flows					411232.36

Total Cash flow for the period		-1132500	443011.9625	486505.06	781807.98
Discount factor=	(1+discount rate)^corresponding period	1	1.15	1.3225	1.520875
Discounted CF=	Cashflow/discount factor	-1132500	385227.7935	367867.72	514051.43
NPV=	Sum of discounted CF=	134647

purchase as NPV is positive

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