The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayers base price is $1,080,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $605,000. The MACRS rates for the first 3 years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $380,000 per year in before-tax operating costs, mainly labor. Campbells 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?

I need help with part (B). How is the tax rate 7.41% calculated?