Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I just asked this question and the answer provided was wrong so I am asking again. New-Project Analysis The Campbell Company is considering adding a

I just asked this question and the answer provided was wrong so I am asking again.

New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $850,000, and it would cost another $24,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $610,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $19,000. The sprayer would not change revenues, but it is expected to save the firm $337,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.

A. What is the Year-0 net cash flow?

B. What are the net operating cash flows in Years 1, 2, and 3?

Year 1: $

Year 2: $

Year 3: $

C. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)?

D. If the project's cost of capital is 13%, what is the NPV of the project?

E. Should the machine be purchased? Yes or No

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Finance

Authors: Harvey S Rosen, Ted Gayer

9th International Edition

0071267883, 9780071267885

More Books

Students also viewed these Finance questions

Question

What can any retailer learn from this case? Discuss in detail.

Answered: 1 week ago