must evaluate a proposal to buy a new milling machine. The purchase price of the miaing machine, including sthipping and installation costs, is $140,000, and the uipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years foe $90,000. The machine would require a $5,000 increase in net operating arking capleal (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs wou'd decline by $53,000 per year, The arginal tax rate is 25%, and the WACC is 11%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. a. How should the $4,500 spent last year be handled? I. Last year's expenditure should be treated as a teminal cash flow and dealt with at the end of the proyect's life. Hence, it should not be included in the initial investment outlay. II. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. III. Last year's expenditure is considered a sunk cost and does not represent an incremental cash fiaw. Hence, it should not be included in the analysis. IV. The cost of research is an incremental cash flow and should be included in the analysis. V. Only the tax effect of the research expenses should be included in the analysis. b. What is the initial investment outlay for the machine for capital budgeting purposes after the 100% bonus depreciation is considered, that is, what is the Year 0 . prpiect cash flow? Enter your answer as a positive value. Pound your ansaer to the nearest dollar. 5 c. What are the projectis annual eash flows during Years 3,2 , and 3 ? Do not round intermediate calculations, found your answers to the nearest doliar: Year 1:3 Year 205 Year 3:1 d. Should the mathine be purchased