1.The Davis Industries is evaluating the proposed acquisition of a new machine. The machine's base price is $216,000, and shipping and installation cost is $24,000. Straight line method for depreciation and it would be sold after 4 years for $60,000. The machine would require an increase in net operating working capital (inventory) of $8,000. The machine would have increase revenues to $160,000, and the operating cost $80,000 per year. Davis's tax rate is 40 percent.

a. What is the initial investment?

b. What are the operating cash flows in Years 1, 2, 3, and 4?

c. What is the terminal cash flow?

d. If the project's cost of capital is 10 percent, should the machine be purchased?