Buckingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC$-750.$

The cost of the XC$-750$ is $$2\mathrm{.}75$ million. Unfortunately, installing this machine will take several months and will

partially disrupt production. The firm has just completed a $$50,000$ 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{.}0$ million per year

in additional sales, which will continue for the $10-$year life of the machine.

Operations: The disruption caused by the installation will decrease sales by $$5$ million this year $($year $0).$ Once the

machine is operating next year, the cost of goods for the products produced by the XC$-750$ is expected to be $70\%$ of

their sale price. The increased production will require additional inventory on hand of $$1\mathrm{.}0$ 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 $$2$ million

per year.

Accounting: The XC$-750$ has a CCA rate of $45\%$ and no salvage value is expected. The firm expects receivables

from the new sales to be $15\%$ of revenues and payables are expected to be $10\%$ of the cost of goods

sold. Buckingham's marginal corporate tax rate is $35\%.$

c$.$ If the appropriate cost of capital for the expansion is $10\%,$ compute the NPV of the purchase $($including all CCA

tax shield effects$).($Hint: when calculating the NPV$,$ you should calculate the free cash flows excluding CCA tax

shields then add the PV CCA tax shields to get the NPV$.)$

d$.$ While the expected new sales will be $$10\mathrm{.}0$ million per year from the expansion, estimates range from

$$8,000,000$ to $$12,000,000.$ What is the NPV in the worst case? In the best case?

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

The NPV is $$-4,333.($Round to the nearest dollar.$)$

d$.$ While the expected new sales will be $$10\mathrm{.}0$ million per year from the expansion, estimates range from

$$8,000,000$ to $$12,000,000.$ What is the NPV in the worst case? In the best case?

What are the worst case free cash flows?

FCF $($excluding CCA tax shields$)$ year $0$ is $dots. $($Round to the nearest dollar.$)$

FCF $($excluding CCA tax shields$)$ year $1$ is $$.($Round to the nearest dollar.$)$

FCF $($excluding CCA tax shields$)$ years $2$ through $9$ is $$.($Round to the nearest dollar.$)$

FCF $($excluding CCA tax shields$)$ year $10$ is $$.($Round to the nearest dollar.$)$

FCF $($excluding CCA tax shields$)$ year $11$ is $$.($Round to the nearest dollar.$)$