and the equipment will be fully depreciated at the time of purchase. The machine would be soid after 3 years for $58,000. The machine would reguire a $4,500 increase in net operating working capital (thereased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $60,000 per year. The marginal tax rate is 25%, and the WACC is 8%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. a. How should the $4,500 spent last year be handled? I. Last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. 11. The cost of research is an incremental cash flow and should be included in the analysis. III. Only the tax effect of the research expenses should be included in the analysis. IV. Last year's expenditure should be treated as a terminal cash flow and deait with at the end of the project's life, Hence, it shouid not be included in the initial investment outlay. v. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash now. Hence, it should not be included in the analysis. b. What is the initial investment outlay for the machine for capital budgeting purposes after the 100% bonus depreclation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar. s c. What are the project's annual cash flows during Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest doliar, Year 1:$ Year 2:$ Year 3:5 d. Should the machine be purchased