You must evaluate a proposal to buy a new milling machine. Thebase price is $142,000, and shipping and installation costs wouldadd another $6,000. The machine falls into the MACRS 3-year class,and it would be sold after 3 years for $56,800. The applicabledepreciation rates are 33%, 45%, 15%, and 7%. The machine wouldrequire a $3,500 increase in net operating working capital(increased inventory less increased accounts payable). There wouldbe no effect on revenues, but pretax labor costs would decline by$35,000 per year. The marginal tax rate is 35%, and the WACC is13%. Also, the firm spent $5,000 last year investigating thefeasibility of using the machine. How should the $5,000 spent lastyear be handled? Last year's expenditure should be treated as aterminal cash flow and dealt with at the end of the project's life.Hence, it should not be included in the initial investment outlay.Last year's expenditure is considered as an opportunity cost anddoes not represent an incremental cash flow. Hence, it should notbe included in the analysis. Last year's expenditure is consideredas a sunk cost and does not represent an incremental cash flow.Hence, it should not be included in the analysis. The cost ofresearch is an incremental cash flow and should be included in theanalysis. Only the tax effect of the research expenses should beincluded in the analysis. What is the initial investment outlay forthe machine for capital budgeting purposes, that is, what is theYear 0 project cash flow? Round your answer to the nearest cent. $What are the project's annual cash flows during Years 1, 2, and 3?Round your answer to the nearest cent. Do not round yourintermediate calculations. Year 1 $ Year 2 $ Year 3 $ Should themachine be purchased?