ou must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and instatlation costs, is $153,000, and the equipment wi e fully depreciated at the time of purchase. The machine would be sold after 3 years for $55,000. The mochine would require an $8,000 increase in net operating working capital increased inventory less increased accounts payable). There would be no effect on revenises, but pretax labor costs would decline by $41,000 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. 3. How should the 54,500 spent last year be handled? 1. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash fow. Hence, it should not be included in the analysis. It. Last year's expend ture if consldered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. III. The cost of research is an incremental cash flow and should be included in the analysic. IV. Onfy the tax effect of the research expenses should be included in the analysis. V. Last year's expenaiture should be treated as a terminat cash fow and dealt with at the end of the projects life. Hence, it should not be induded in the intial investmsent outiay. b. What is the initiel imevetment outlay for the machine for capital budgeting purposns ater the 100 bo bout depreciation is considered, that is, what is the Year 0 project cath fown tenter vour amwer as a positive value. Round your answer to the nearest dellar Year 111 Year 2:1 Yeer 3:1 14. Should the machine be purchased