bu must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $156,000, and the equipment will le fully depreciated at the time of purchase. The machine would be sold atter 3 years for $99,000. The machine would require a $3,500 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 $30,000 per year, The marginal tax rate is 25\%, and the WACC is 8%. Aso, the firm spent $4,500 last year investigating the feasibility of using the mochine. a. How should the $4,500 spent last year be handled? 1. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's ife. Hence, it should not be included in the initial investment outar. If. Last year's expendture is considered an opportunity cost and does not represent an incremental cash fiow. Hence, it should not be included in the analysis. IIt. 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 anylysis. IV. The cost of research is an incremental cash flow and should be included in the analysis. . Only the tax effect of the research expenses should be included in the analysis. b. What is the initial imvestment outiay for the machine for captal budgetino purposes after the 100 s bonus depreciation is considered, that is, whut is the Year 0 project cash flowi Enter vour answer as a postive value. Round your answer to the nearest doliar: 1 c. What are the projects annual cash fows during Years 1,2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar. Year it s Year 2: 5 Year 3: 1 d. Should the machine be purchased