The ChemGuys Corporation is considering the purchase of a chemical analysis machine. The purchase of this machine will result in an increase in earnings before interest and taxes of $65,000 per year. The machine has a purchase price of $300,000, and it would cost an additional $8,000 after tax to install this machine correctly. In addition, to operate this machine properly, inventory must be increased by $18,000.

This machine has an expected life of 10 years, after which time it will have no salvage value. Also, assume

simplified straight-line depreciation, that this machine is being depreciated down to zero, a 33 percent marginal tax rate, and a required rate of return of 11 percent.

1. What is the initial outlay associated with this project?
2. What are the annual after-tax cash flows associated with this project for years 1 through 9?
3. What is the terminal cash flow in year 10 (that is, the annual after-tax cash flow in year 10 plus any additional cash flow associated with termination of the project)?
4. Should this machine be purchased?