Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2.02 million per year. bullet Accounting: The XC-750 will be depreciated via the straight-line method in years 1?10. Receivables are expected to be16% of revenues and payables to be 9% of the cost of goods sold. Billingham?s marginal corporate tax rate is 15%.

a. Determine the incremental earnings from the purchase of the XC-750.

b. Determine the free cash flow from the purchase of the XC-750.

c. If the appropriate cost of capital for the expansion is 10.1%, compute the NPV of the purchase.

d. While the expected new sales will be $10.2 million per year from the expansion, estimates range from $8.25 million to $12.15 million. What is the NPV in the worst case? In the best case?

e. What is the break-even level of new sales from the expansion? What is the break-even level for the cost of goods sold? f. Billingham could instead purchase the XC-900, which offers even greater capacity. The cost of the XC-900 is $3.91 million. The extra capacity would not be useful in the first two years of operation, but would allow for additional sales in years 3-10. What level of additional sales (above the $10.2 million expected for the XC-750) per year in those years would justify purchasing the larger machine?