11-06

The Camphell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $820,000, and it would cost another \$16,000 to install it. The machine falls into the MACRS 3 -year class, and it would be sold after 3 years for $615,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capitat (inventory) of $16,000. The sprayer would not change revenums, but it Is expected to save the firm $315,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. a. What is the Yearo net cash fow? 5 b. What are the net operating cash flows in Years 1,2 , and 3 ? Year 1:5 Year 2:5 Year 3:5 c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capial)? 5 d. If the project's cont of capital is 14\%, what is the NPV of the project? 5 Should the machine be purchased