The Campbell Company is evaluating the proposed acquisition of a new milling ma- chine. The machines base price is $108,000, and it would cost another $12,500 to modify it for special use. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The machine would require an increase in net working capital (inventory) of $5,500. The milling machine would have no effect on revenues, but it is expected to save the firm $44,000 per year in before-tax operat- ing costs, mainly labor. Campbells marginal tax rate is 35%. a. What is the net cost of the machine for capital budgeting purposes? (That is, what is the Year-0 net cash flow?) b. What are the net operating cash flows in Years 1, 2, and 3? Chapter 11: Cash Flow Estimation and Risk Analysis 459 c. What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)? d. What is the DPB, NPV, MIRR, EAA? If the projects cost of capital is 12%, should the machine be purchased?