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 $24,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $486,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $17,000. The sprayer would not change revenues, but it is expected to save the firm $304,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) 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 11%, what is the NPV of the project? Should the machine be purchased? The Initial Cash Flow is $ $ Machine price Installation cost NWC required Year 0 cash flow (10) 850,000 24,500 (17,000) 857,500 $ $ 1 Calculate the depreciation basis Basis: Machine cost Installation Expense Depreciation basis 850,000 24,500 874,500 Calculate the depreciation tax savings Depreciation tas savings: Year 1 Year 2 Year 3 Year 4 Depreciation rates Depreciation expense Depreciation tax savings 0.3333 291,470.9 72,867.7 0.4445 388,715.3 97,178.8 0.1481 129,513.5 32,378.4 0.0741 64,800 2 Calculate the after tax savings: Year 1 Year 2 Year 3 Before tax operating savings Tax on operating savings After tax operating savings 304,000 76,000 228,000 304,000 76,000 228,000 304,000 76,000 228,000 3 Calculate the total annual operating cash flows Total annual after tax operating CF Year 1 Year 2 Year 3 After tax operating savings Depreciation tax savings Net Operating Cash Flow $ $ $ 228,000.0 $ 228,000.0 $ 228,000.0 72,867.7 $ 97,178.8 $ 32,378.4 155,132.3 $ 130,821.2 $ 195,621.6 The additonal Year 3 cash flows are: First, find the remaining book value: Salvage value calculation Additional Year CF Depreciation basis Total depreciation Years 1-3 Remaining book value $ $ $ 874,500.0 depreciation basis 809,700.0 64,800.0 depreciation expense Second, calculate the tax on the Salvage Value Salvage Value Remaining book value Salvage Value minus book value Tax on gain @25% $ $ $ 64,800.0 (64,800.0) (16,200.0) Third, calculate the Year 3 additional cash flow: Salvage value Tax on salvage gain (minus) Net working capital recovery (NWC) add Additional Year 3 CF $ $ $ $ (16,200.0) 17,000.0 33,200.0 The cost of capital is 11% The total annual cash flows are: Year 0 Year 1 Year 2 Year 3 $ Year O Cash Flow (10) Net operating cash flow Additional Year 3 Cash Flow Total Cash Flow 857,500 $ 155,132.3 $ 130,821.2 $ $ (859,500) $ 155,132 $ 130,821 $ 195,621.6 33,200.0 228,822 $ NPV Factor at 11% 0.901 0.812 0.731 Present value $ 139,774.2 $ 106,226.8 $ 167,268.6 TOTAL PRESENT VALUE $ 413,269.6 Initial Investment (10) $ 857,500 NET PRESENT VALUE $ 1,270,769.6 Question: Can you please help me to calculate my salvage correctly