I am in need help with Part D

Golden State Bakers, Inc. (GSB) has an opportunity to invest in a new dough machine. GSB needs more productive capacity, so the new machine will not replace an existing machine. The new machine is priced at $260,000 and will require modifications costing $15,000. It has an expected useful life of 10 years, will be depreciated using the MACRS method over its 5-year class life, and has an expected salvage value of $12,500 at the end of Year 6. (See Table 13A-2 for MACRS recovery allowance percentages.) The machine will require a $22,500 investment in net working capital. It is expected to generate additional sales revenues of $140,000 per year, but its use also will increase annual cash operating expenses by $65,000. GSBs required rate of return is 10 percent, and its marginal tax rate is 40 percent.

78 INPUT DATA: 79 80 Base price 81 Modifications 82 Increase in NWC 83 Increase in sales revenue 84 Increase in Operating costs 85 Salvage value 86 Required rate of return 87 Tax rate 88 MACRS class life (years) 89 Useful life (years) $260,000 $15,000 $22,500 $140,000 $65,000 $12,500 10% 40% 91 2.a. (8 points) 92 Base price 93 Modification 94 Increase in NWC 95 Initial investment outlay Estimate the initial investment outlay $260,000 $15,000 $22,500 $297,500 96 2.b. (8 points) 97 98 99 Depreciation Basis = Estimate dereciation expense and ending book value each year. 275,000 Year MACRS Rate 0.20 0.32 0.19 0.12 0.11 0.06 Depreciation $55,000 $88,000 $52,250 $33,000 $30,250 $16,500 Ending Book Value $220,000 $132,000 $79,750 $46,750 $16,500 $0 105 5 106 . Sheet1 + 106 0.06 $16,500 $0 109 Estimnate the net salvage value $12,500 $5,000 $7,500 Estimate the total after-tax net cash flow per year. $140,000 $65,000 $140,000 $65,000 $140,000 $65,000 $140,000 $65,000 $140,000 $65,000 $140,000 $65,000 108 2. c.(8 points) Cash flow from sale of asset 110 Tax effect of sale 111 Net salvage value cash flow 112 113 2. d. (8 points) 114 Year 115 Increase in Sales revenue 116 Increase in Operating costs 117 Deprecation on new asset 118 Net operating income 119 Taxes 120 Net income 121 Deprecation 122 Incremental operating cash flow 123 Return of NWC 124 Net Salvage value 125 Net after-tax cash flow 126 127 2.e.(8 points) 128 NPV= 129 IRRE $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $22,500 $0 Calculate the project's NPV and IRR. Sheet1