The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $$800,000,$ and it would cost another $$20,500$ to install it$.$ The machine falls into the MACRS $3-$year class $($the applicable MACRS depreciation rates are $33\mathrm{.}33\%,44\mathrm{.}45\%,14\mathrm{.}81\%,$ and $7\mathrm{.}41\%),$ and it would be sold after $3$ years for $$541,000.$ The machine would require an increase in net working capital $($inventory$)$ of $$12,500.$ The sprayer would not change revenues, but it is expected to save the firm $$407,000$ per year in before$-$tax operating costs, mainly labor. Campbell's marginal tax rate is $35\%.$

What is the Year $0$ net cash flow?

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What are the net operating cash flows in Years $1,2,$ and $3?$ Do not round intermediate calculations. Round your answers to the nearest dollar.

Year $1$ $

Year $2$ $

Year $3$ $

What is the additional Year $3$ cash flow $($i$.$e$,$ the after$-$tax salvage and the return of working capital$)?$ Do not round intermediate calculations. Round your answer to the nearest dollar.

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If the project's cost of capital is $14\%,$ what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.

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Should the machine be purchased?Problem $11-06$

New$-$Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The

sprayer's base price is $$800,000,$ and it would cost another $$20,500$ to install it$.$ The machine

falls into the MACRS $3-$year class $($the applicable MACRS depreciation rates are $33\mathrm{.}33\%,$

$44\mathrm{.}45\%,14\mathrm{.}81\%,$ and $7\mathrm{.}41\%),$ and it would be sold after $3$ years for $$541,000.$ The machine

would require an increase in net working capital $($inventory$)$ of $$12,500.$ The sprayer would not

change revenues, but it is expected to save the firm $$407,000$ per year in before$-$tax operating

costs, mainly labor. Campbell's marginal tax rate is $35\%.$

a$.$ What is the Year $0$ net cash flow?

$

b$.$ What are the net operating cash flows in Years $1,2,$ and $3?$ Do not round intermediate

calculations. Round your answers to the nearest dollar.

c$.$ What is the additional Year $3$ cash flow $($i$.$e$,$ the after$-$tax salvage and the return of working

capital$)?$ Do not round intermediate calculations. Round your answer to the nearest dollar.

$

d$.$ If the project's cost of capital is $14\%,$ what is the NPV of the project? Do not round

intermediate calculations. Round your answer to the nearest dollar.

$

Should the machine be purchased?