Calculate the annual cash flows and NPV for the following proposed project. Determine whether the company should consider the project. HINT: if EBIT is negative, the company receives a tax credit.

The Bell Tune Company makes musical recording devices. The company currently sells several analog recording devices and is considering the introduction of a new and more technologically advanced digital recording device, the TuneXL, to fill out and modernize its product line.

Production of the new TuneXL recording device will require the purchase of new equipment. The new equipment will cost $510,000 to buy, $18,000 for shipping, and $34,000 for installation. The equipment will be depreciated straight line to zero over the project's five-year life, at the end of which the equipment is expected to be scrapped for $85,000. The new equipment will require an initial increase in working capital of $27,000.

The Bell Tune Company estimates the sales of the new TuneXL will be $185,000 in the first year of the project. After the new TuneXL catches on the sales are expected to be $360,000 annually for the second through the fifth year of the TuneXL project. Variable costs for producing the TuneXL are expected to be 20 percent of sales and fixed costs are expected to be $40,000 annually during each year of the project.

An independent consultant has determined that if Bell Tune Company introduces the new TuneXL device, it can expect a decrease of $20,000 in net sales (sales less variable costs) of its existing analog recording devices in the first year of the TuneXL project. Net sales for the analog products would be $50,000 less than currently existing sales annually in the second through fifth years of the TuneXL project.

In gathering information about the new automated machine, the chief operating officer and the marketing director have traveled to another state to view a demonstration of the TuneXL production equipment, incurring travel costs of $5,650.

The cost of capital is 5.56%. The firm's tax rate is 35%.