(Calculating project cash flows and NPV) The Guo Chemical Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of $75,000 per year. The machine has a purchase price of $200,000 and it would cost an additional $7000 after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by $20,000. This machine has an expected life of 10 years, after which time it will have no salvage value. Also, 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 14 percent.

a. What is the initial outlay associated with this project?

b. What are the annual after-tax cash flows associated with this project for years 1 through 9?

c. what is the terminal cash flow in year 10(that is, the annual after-tax cash flow in year 10 plus any additional cash flow associated with termination of the project)?

d. Should this machine be purchased ?