New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,110,000, and it would cost another $22,500 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 $590,000. The machine would require an increase in net working capital (inventory) of $12,500. The sprayer would not change revenues, but it is expected to save the firm $408,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 35%. Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.

A)What is the Year-0 net cash flow?

$ _______

B)What are the net operating cash flows in Years 1, 2, and 3?

Year 1:	$ _________________
Year 2:	$ ________________
Year 3:	$ _________________

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

$ _________

D)If the project's cost of capital is 15 %, what is the NPV of the project?

$ _________

Should the machine be purchased?

-Select-Yes or No