Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $850,000, and it would cost another
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $850,000, and it would cost another $23,000 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $610,000. The machine would require an increase in net working capital (inventory) of $20,000. The sprayer would not change revenues, but it is expected to save the firm $376,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 35%. Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. a. What is the Year-O net cash flow? b. What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 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 10 %, what is the NPV of the project? Should the machine be purchased? -Select
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started