Ralph's Bow Works (RBW) is planning to add a new line of bow ties that will require the acquisition of a new knitting and tying machine. The machine will cost $1 million. It is classified as a 7-year MACRS asset and will be depreciated as such. Interest costs associated with innancing the equipment purchase are estimated to be $60,000 per year. The expected salvage value of the machine at the end of 13 years s $40,000. The decision to add the new line of bow ties will require additional net working capital of $55,000 immediately, $25,000 at the end of year 1 , and $15,000 at the end of year 2. RBW expects to sell $320,000 worth of the bow ties during each of the 13 years of product life. RBW expects the sales of its other ties to decline by $25,000 (in year 1) as a result of adding this new line of ties. The lost sales level will remain constant at $25,000 over the 13 -year life of the proposed project. The cost of producing and selling the ties estimated to be $50,000 per year. RBW will realize savings of $6,000 each year because of lost sales on its other tie lines. The marginal tax rate is 40 percent. Use Table 9A-3 to answer the questions below. Round your answers to the nearest dollar. Compute the net investment (year 0 ). Compute the net cash flows for years 1 and 13 for this project. NCF1:$ NCF13:$ A TA BLE 9A.3 Depreciation Rates for MACRS Property Other than Real Property* Ralph's Bow Works (RBW) is planning to add a new line of bow ties that will require the acquisition of a new knitting and tying machine. The machine will cost $1 million. It is classified as a 7-year MACRS asset and will be depreciated as such. Interest costs associated with innancing the equipment purchase are estimated to be $60,000 per year. The expected salvage value of the machine at the end of 13 years s $40,000. The decision to add the new line of bow ties will require additional net working capital of $55,000 immediately, $25,000 at the end of year 1 , and $15,000 at the end of year 2. RBW expects to sell $320,000 worth of the bow ties during each of the 13 years of product life. RBW expects the sales of its other ties to decline by $25,000 (in year 1) as a result of adding this new line of ties. The lost sales level will remain constant at $25,000 over the 13 -year life of the proposed project. The cost of producing and selling the ties estimated to be $50,000 per year. RBW will realize savings of $6,000 each year because of lost sales on its other tie lines. The marginal tax rate is 40 percent. Use Table 9A-3 to answer the questions below. Round your answers to the nearest dollar. Compute the net investment (year 0 ). Compute the net cash flows for years 1 and 13 for this project. NCF1:$ NCF13:$ A TA BLE 9A.3 Depreciation Rates for MACRS Property Other than Real Property*
