Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs by $110,000 annually. Madison would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $33,000 at the end of its 5-year operating life. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working capital would increase by $35,000 initially, but it would be recovered at the end of the projects 5-year life. Madisons mar-ginal tax rate is 25%, and a 10% cost of capital is appropriate for the project.

C. Suppose the CFO wants you to do a scenario analysis with different values for the cost savings, the machines salvage value, and the working capital (WC) requirement. She asks you to use the following probabilities and values in the scenario analysis: THE ANSWER IS E [NPV] = $34,322; NPV= $53,730 CV = 1.57 (PLEASE SHOW ME THE STEPS AND LABEL THE ANSWERS)

Scenario Worst case Base case Best case Probability 0.35 0.35 0.30 Cost Savings $ 88,000 110,000 132,000 Salvage Value $28,000 33,000 38,000 WC $40,000 35,000 30,000 Scenario Worst case Base case Best case Probability 0.35 0.35 0.30 Cost Savings $ 88,000 110,000 132,000 Salvage Value $28,000 33,000 38,000 WC $40,000 35,000 30,000