Bobby's Motors is considering the purchase of a new production machine for $450,000. The purchase of this machine will result in an increase in earnings before interest and taxes of $120,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $22.000 after tax. In addition. it would cost $3.500 after tax to install this machine correctiv. Also. because this machine is extremelv efficient. its purchase would necessitate an increase in inventory of $28,000. This machine has an expected life of 10 ears. after which it will have no salvage value.

Assume simplified straight-line depreciation. that this machine is being depreciated down to zero, a 32 percent marginal

tax rate. and a required rate of return of 9 percent

1. What is the initial outlay associated with this project?
2. What are the annual after-tax cash flows associated with this proiect for vears 1 through 9?
3. What is the terminal cash flow in year 10 (that is, the annual after-tax cash flow in year 10 plus any additional cash flows associated with termination of the project)?

d. Should this machine be purchased