P11-2 Grain State Bakers, Inc. (GSB) has an opportunity to invest in a new dough machine. GSB needs more productive capacity, so the new machine will not replace an existing machine. The new machine will cost $100,000 including installation. It will be depreciated at $67,000, $22,000, and $7,000, over years 1 through 3, respectively. The machine has an expected salvage value of $5,000 at the end of Year 4. The machine will require a $12,000 investment in net working capital. It is expected to generate additional sales revenues of $80,000 per year, but its use also will increase annual cash operating expenses by $30,000. GSB's required rate of return is 10 percent, and its marginal tax rate is 40 percent. The machine's book value at the end of Year 4 will be $0, so GSB will have to pay taxes on the $5,000 salvage value.

Compute the annual cash flows for each year (Years 0 through 4) of this project. (Show work on next page, but enter answers on this page)

Year 0 Cash Flow:

Year 1Year 2Year 3Year 4

NET INCOME:

CASH FLOWS:

Terminal Cash Flow: