Kinky Copies is considering the purchase of a high-volume copier. The machine costs $100,000 and will be depreciated straight-line over 5 years to a salvage value of $20,000. Kinky anticipates that the machine can actually be sold in 5 years for $30,000. The machine will save Kinky $20,000 a year in labor costs, but will require an increase in working capital, mainly paper supplies, of $10,000. The firms marginal tax rates is 35%, and the discount rate is 8%.

a) What are the relevant capital investment cash flows for this purchase?

b) What are the relevant cash flows related to changes in working capital for this purchase?

c) What are the operating cash flows generated from this purchase?

d) Compute the NPV for this purchase and advise Kinky Copies whether it should buy the machine?