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

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Finance

New-Project Analysis
The Campbell Company is considering adding a robotic paintsprayer to its production line. The sprayer's base price is$920,000, and it would cost another $19,000 to install it. Themachine falls into the MACRS 3-year class (the applicable MACRSdepreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and itwould be sold after 3 years for $630,000. The machine would requirean increase in net working capital (inventory) of $18,000. Thesprayer would not change revenues, but it is expected to save thefirm $416,000 per year in before-tax operating costs, mainly labor.Campbell's marginal tax rate 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?
y/n

Answer & Explanation Solved by verified expert

4.0 Ratings (653 Votes)

aInitial Investment Outlay Base Price Modification cost Increase in Working Capital 92000019000 18000 957000 since outflow bAnnual Cash Flows Year 1 2 3 Savings in Cost 416000 See Answer

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