Cobrots Corporation is considering the purchase of a new production machine for $18,000,000, the machine will incur shipping cost of $200,000, installation of $300,000 and site preparation of $500,000. The machine is expected to last for 4 years. At the end of the 4 years, the machine has a salvage value of $200,000. The purchase of this machine would result in revenue over the period respectively. (35 marks)

Yr. 1 $37,500,000

Yr. 2 $42,500,000

Yr. 3 $35,000,000

Yr. 4 $37,500,000

The cost of good sold is 25% of the revenue for each of the 4 years. Yearly operating cost is $13,000,000. The firm uses a 34% marginal tax rate and the annual rate of return is 15%.

1. What is the initial cost outlay associated with this project?
2. What is the annual net cash flows associated with this project?
3. What is the NPV of the project?
4. Should this machine be purchased? Justify your response.