Due to high demand for wood, San Lorenzo Lumber is considering buying a new timber cutting machine to add to its existing stock.

• The machine will cost $360,000 to purchase and $20,000 for shipping and installation. Last year, the firm cleared an unused area in its timber mill to make space for the machine, at a cost of $8,000.
• The new cutting machine will allow the company to sell an additional 140,000 pieces of wood per year, at a price of $6 per piece. Variable costs, including timber, electricity and labor, are expected to add up to 60% of sales.
• To make best use of the new machine, the company will need to increase its inventory of timber logs by $25,000. Since the firm uses trade credit when purchasing raw timber, accounts payable will increase by $12,000.
• The cutting machine is expected to last 4 years and will then be sold for $35,000. It falls into the 3-year MACRS class, with depreciation rates as follows:

Year	1	2	3	4
Depreciation rate	33%	45%	15%	7%

The firm has a marginal tax rate (federal and state) of 34%.

Attempt 1/5 for 10 pts.

Part 1

What is the initial (year-0) project cash flow? Choose the right sign.

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Attempt 1/5 for 10 pts.

Part 2

What is the project cash flow in year 1?

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Attempt 1/5 for 10 pts.

Part 3

What is the project cash flow in year 2?

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Attempt 1/5 for 10 pts.

Part 4

What is the project cash flow in year 3?