The Chung Chemical Corporation is considering the purchase of achemical-analysis machine. Although the machine being considered would result in an increase in earnings before interest and tax of $35,000 peryear, it has a purchase price of $100,000 and it would cost an additional

$5,000 after tax to correctly install this machine. Inaddition, to operate thismachine, inventory would have be increased by $5,000.

This machine has an expected life of 10 years, after which it will have no salvage value. Assume thefollowing: simplifiedstraight-line depreciation to a book value ofzero, a 30% marginal tax rate and a required rate of return of 15%.

a.What is the initial cash outlay associated with thisproject?

b.What are the annual net cash flows associated with this project for years 1 to 9?

c.What is the terminal cash flow in year 10 (that is, the annual free cash flow in year 10 plus any additional cash flows associated with termination of theproject)?

d.Should this machine bepurchased?

A. The initial cash outlay associated with this project is $

b.The annual net cash flows associated with this project for years 1 to 9 are $

c.The terminal cash flow in year 10 (the annual free cash flow in year 10 plus any additional cash flow associated with termination of theproject) is $

d.Given theinformation, the machine:

A. should not be purchased because the NPV is

negative $ 64 comma 383$64,383,

making it an unacceptable investment for the company.

B. should be purchased because the NPV is

$ 64 comma 383$64,383,

making it a worthwhile investment for the company.