New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $950,000, and it would cost another $20,000 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $602,000. The machine would require an increase in net working capital (inventory) of $10,000. The sprayer would not change revenues, but it is expected to save the firm $378,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%.

1. A)WhatistheYear-0netcashflow?
2. B)WhatarethenetoperatingcashflowsinYears1,2,and3?Roundyouranswerstothenearestdollar.
3. Year1
4. Year2
5. Year3

C)What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)? Round your answer to the nearest dollar.

D) If the project's cost of capital is 11 %, what is the NPV of the project? Round your answer to the nearest dollar.

Should the machine be purchased? YES or NO