CFO = -1 + Change in networking capital - upfront (-) S (sale of old asset if replacement) +T(S-B) Sale - book if old asset is sold for a loss You get a credit I = new project cost +installation + shipping + putting it into service - =(AR-10 - AD) (1-T) + AD-ANWC XYZ will purchase new machinery that will require an initial outlay of $125,000. It will be depreciated over 5 years at $25,000 a year. XYZ has a marginal tax rate of 35%, During year 1 and 2 they expect total revenue to increase by $25,000 EACH year, and in the following years it will increase by $30,000 EACH year. The incremental expenses are expected to increase by $10,000 in year 1, then decrease by $2,000 EACH year for the remainder of the project. Find annual net cash flows. Find NPV assuming a 10% cost of capital. Should they accept the project