New Project Analysis

You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $182,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $62,000. The machine would require a $3,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $51,000 per year. The marginal tax rate is 25%, and the WACC is 8%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine.

How should the $4,500 spent last year be handled?

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 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.

What are the project's annual cash flows during Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.

Should the machine be purchased?

Vos mistakes to a new line in the purchase price of the miling machining Piping and instalatie 2.0 and the woment we fully deprecated at the time of purchase. The machine could be soldater years to 10,000. The machine would require 13.30 i morting polectate inventory less increased reported bene effective, but preta labor costs would dediny 551,000 per year. The mail tax rate 254, CSA, the test 4.500 last year investigating me ability of so the machine How should the 4.500 punt last year bearded L. The core of research is an incrementat cashion and should be induced the analysis IL Only the tax affect of the research exentes should be induced in the analys II. Last year's edhe shule betaal terminal cash flow and it with the end of the road. Hence, would not be reduced in the investuar lasty's editare il candidared as apportunity cost and does not represent an incremental cost flow. Hence, it could not be included in the analise V. Last year's agendture is considered a un cost and does not represent an incrementalca Bw. Hence, thould not be included in the analysis What is the went outlay or the capital Baging purposes at the 2004 Dordrecznictwa w the prefect cash for your insa pole value and your answer to was the projects and catch Nows during years 1. 2. ed Dot raud intemeiata calatons. Round your own te the nearest bollar Year Year 2: Year a. Sa ext