Problem 11-06
New-Project Analysis
The Campbell Company is considering adding a robotic paintsprayer to its production line. The sprayer's base price is$910,000, and it would cost another $20,500 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 $688,000. The machine would requirean increase in net working capital (inventory) of $17,000. Thesprayer would not change revenues, but it is expected to save thefirm $361,000 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.
- 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 12 %, what is the NPV ofthe project? Do not round intermediate calculations. Round youranswer to the nearest dollar.
$
