(18%) Ala Co. is considering the purchase of a new machine for $900,000 and the installation cost would be $100,000. For the coming 5 years, sales will be $880,000 per year and annual operating costs (exclusive of depreciation) will be $540,000. The purchase of this machine would necessitate an increase in inventory of $120,000. This machine has an expected life of 5 years, after which it will have no salvage value. Assume that straight-line depreciation is used. The firms cost of capital is 10% and the firms tax rate is 20%.

(1) What is the initial outlay associated with this project?

(2) What are the annual after-tax cash flows associated with this project for years 1 to 5?

(3) Should this machine be purchased? (PVIF10%,5 =0.6209, PVIFA10%,5 = 3.7908)