Temper Motors is considering the purchase of a new production machine for $1 million delivered. The purchase of this machine will result in an increase in EBIT of $400,000 per year. To operate this machine properly, workers have to go through a brief training session that would cost $100,000. In addition, it would cost $50,000 to install this machine properly. Also, because this machine is extremely efficient, its purchase would necessitate an increase in inventory of $150,000. This machine has an expected life of 10 years, after which it will have no salvage value. Assume straight line depreciation and that this machine will depreciate to zero, a 34 percent marginal tax rate, and a required rate of return of 12 percent.

What is the Initial Capital Investment associated with this project?

The Initial capital investment associated with this project would be purchase price of a new production machine for $ 1 million ($1,000,000).

What are the Operating Cash Flows associated with this project for years 1 through 9?

What is the Cash Flow at Disposal in year 10?

What is the NPV?

Should this machine be purchased? Why?