Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC$-750.$ The cost of the XC$-750$ is $$2\mathrm{.}67$ million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $$45,000$ feasibility study to analyze the decision to buy the XC$-750,$ resulting in the following estimates:

Marketing: Once the XC$-750$ is operating next year, the extra capacity is expected to generate $$10\mathrm{.}15$ million per year in additional sales, which will continue for the ten$-$year life of the machine.

Operations: The disruption caused by the installation will decrease sales by $$4\mathrm{.}92$ million this year. As with Billingham's existing products, the cost of goods for the products produced by the XC$-750$ is expected to be $72\%$ of their sale price. The increased production will also require increased inventory on hand of $$1\mathrm{.}07$ million during the life of the project. The increased production will require additional inventory of $$1\mathrm{.}07$ million, to be added in year $0$ and depleted in year $10.$

Human Resources: The expansion will require additional sales and administrative personnel at a cost of $$1\mathrm{.}98$ million per year.

Accounting: The XC$-750$ will be depreciated via the straight$-$line method in years $1-10.$ Receivables are expected to be $16\%$ of revenues and payables to be $11\%$ of the cost of goods sold. Billingham's marginal corporate tax rate is $15\%.$

a$.$ Determine the incremental earnings from the purchase of the XC$-750.$

b$.$ Determine the free cash flow from the purchase of the XC$-750.$

c$.$ If the appropriate cost of capital for the expansion is $10\mathrm{.}4\%,$ compute the NPV of the purchase

d$.$ While the expected new sales will be $$10\mathrm{.}15$ million per year from the expansion, estimates range from $$8\mathrm{.}25$ million to $$12\mathrm{.}05$ million. What is the NPV in the worst case? In the best case?

a$.$ Determine the incremental earnings from the purchase of the XC$-750.$

Calculate the incremental earnings from the purchase of the XC$-750$ below: $($Round to the nearest dollar.$)$

Incremental Earnings

Year

Sales Revenues

Cost of Goods Sold

S$,$ G$,$ and A Expenses

Depreciation

EBIT

Taxes at $15\%$

Unlevered Net Income

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