Black You must v epruara me machine suhe price of the main con years . The machine were were intering wing carri e The marginal taxes a nd the WACC 10 , the form 4.500 last year of th e a. How should the $4.500 year behandel Last years expedicure.com dered an oportunity and resorpresenta come c ow. Henc e to the year's expenditures considered a w o nd does no t a rental cash flow be included the The cost of research is an incrementala ww should be induced in the way IV. on the taxect of the researchers should be used in the analys V. Last year's expenditure would be treated as a termina c omanda end the prostod dement mee r budgeting purposester the 100 bonus conderwerpe w a NA DIAP Search this course Ch 12: End-of-Chapter Problems - Cash Flow Estimation and Risk Analysis 0 x eBook You must evaluate a proposal to buy a new milling machine. The purchase price of the miling machine, including shipping and installation costs, is $107,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $40,000. The machine would require a $7,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $48,000 per year. The marginal tax rate is 25%, and the WACC is 10%. 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? 1. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analys II. Last year's expendture is considered a sunk cost and does not represent an incremental cash flow. Hence, should not be included in the analysis TIL. The cost of research is an incremental cash flow and should be included in the analysis. IV. Only the tax effect of the research expenses should be included in the analysis V. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's fe. Hence, should not be included in the initial investment outlay. b. What is the initial investment outlay for the machine for capital budgeting purposes after the 100% bonus depreciation is considered, thats what is the Year project cash flow enter your answer as a positive value. Round your answer to the nearest dolar. c. What are the project's annual cash flows during Years 1, 2, and 37 Do not round intermediate calculations. Round your answers to the nearest dolar. Year 1: Year 3: d. Should the machine be purchased
