(New project analysis) Raymobile Motors is considering the purchase of a new production machine for $500,000. The purchase of this machine will result in an increase in earnings before interest and taxes of $150,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $25,000 after taxes. It would cost $5,000 to install the machine properly. Also, because the machine is extremely efficient, its purchase would necessitate an increase in inventory of $30,000. This machine has an expected life of 10 years, and will be depreciated down to zero using the bonus depreciation method with that depreciation taking place in year 1. Assume a 21 percent marginal tax rate, and a required rate of return of 15 percent.

1. What is the initial outlay associated with this project?

2. What are the annual after-tax cash flows associated with this project for

   years 1, and 2 through 9?

3. What is the terminal cash flow in year 10 (what is the annual after-tax cash

   flow in year 10 plus any additional cash flows associated with the termination

   of the project)?

4. Should the machine be purchased?