Problem $11-6$

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $$920,000,$ and it would cost another $$20,000$ to install it$.$ The machine falls into the MACRS $3-$year class, and it would be sold after $3$ years for $$500,000.$ The MACRS rates for the first three years are $0\mathrm{.}3333,0\mathrm{.}4445,$ and $0\mathrm{.}1481.$ The machine would require an increase in net working capital $($inventory$)$ of $$15,500.$ The sprayer would not change revenues, but it is expected to save the firm $$304,000$ per year in before$-$tax operating costs, mainly labor. Campbell's marginal tax rate is $25\%.$

a$.$ What is the Year$-0$ cash flow?

b$.$ What are the project recurring cash flows in Years $1,2,$ and $3?$

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 $12\%,$ what is the NPV$?$