Save Homework: Chapter 9 Homework (Copy) n Score: 0 of 1 pt 10 of 16 (7 complete) P 9-33 (similar to) HW Score: 24.22%, 3.88 of 16 pts Question Help Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC 750 is $2.75 million Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $45,000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates Marketing Once the XC-750 is operational next year, the extra capacity is expected to generate $10.20 million per year in additional sales, which will continue for the 10-year life of the machine Operations. The disruption caused by the installation will decrease sales by $4.95 million this year. As with Billingham's existing products, the cost of goods for the products produced by the XC-750 is expected to be 67% of their sale price. The increased production will also require increased inventory on hand of $1.04 million during the life of the project, including year 0 Human Resources. The expansion will require additional sales and administrative personnel at a cost of $2.07 million per year - Accounting The XC 750 will be depreciated via the straight-line method over the 10 year life of the machine. The firm expects receivables from the new sales to be 16% of revenues and payables to be 9% of the cost of goods sold. Billingham's marginal corporate tax rate is 35% a. Determine the incremental earnings from the purchase of the XC-750 b. Determine the free cash flow from the purchase of the XC-750 c. If the appropriate cost of capital for the expansion is 10.4%, compute the NPV of the purchase d. While the expected new sales will be $10.20 million per year from the expansion, estimates range from $8.30 million to $12.10 million What is the NPV in the worst case? In the best case? e. What is the break-even level of new sales from the expansion? What is the breakeven level for the cost of goods sold? 1. Billingham could instead purchase the XC-800, which offers even greater capacity. The cost of the XC 900 is $4.02 milion. The extra capacity would not be useful in the first two years of operation, but would allow for additional sales in years 3 through 10. What level of additional sales (above the $10 20 million expected for the XC-750) per year in those years would justify purchasing the larger machine