Problem $1$

A company is expanding its operations by adding a new machine to its production process. The cost of the machine is $$3,000,000.$ This addition will also require inventories to increase by $$350,000,$ accounts receivable to increase by $$150,000,$ and accounts payable to increase by $$75,000.$

The machine is going to be depreciated over $4$ years to $0$ salvage value using the straight$-$line method.

The introduction of the machine will increase revenue by $$950,000$ per year over the project life. In addition, the operating costs will increase by $$250,000$ per year over the project's life. The company can sell this new machine for $$350,000$ at the end of the fourth year.

The project's life is $4$ years, and the company's tax rate is $21\%.$ If the cost of capital is $12\%.$

What is the initial investment, $CF0?$

What is the first cash flow, CF$1,$ that will be used for the NPV calculations?

What is the terminal value in year $4?$

What is the NPV of this project?