tou must evaluate a proposal to buy a new muling machine. The purchase price of the milling machine, including shipping and installation costs, is $198,000, and the cquipment wil be fully depreciated at the time of purchase. The machine would be sold after 3 years for $136,000. The machine would require an $8,000 increase in net pperating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $60,000 per yeac. The marginal tax rate is 25%, and the WACC is 9%. Also, the firm spent 54,500 last year investigating the feasibility of using the machine. a. How sheuld the $4,500 spent last year be handied? 1. The cost of research is an incremental cash fow and should be included in the analysis. II. Only the tax effect of the research expenses should be included in the analysis. 111. Last year's expenditure should be treated as a terminal cash fow and deait with at the end of the project's life. Hence, it should not be included in the initial investment outiay. IV. Last year's expendture is consdered an opportunity cost and does not reprosent an incremental cash flow. Hence, it should not be included in the analysis: V. Last year's expenditure is considered a sunik cost and does not represent an incremental cash fow. Hence, it should not be included in the analysis. b. What is the initial investment outioy for the machine for capital budgeting purposes after the 100w bonus depreciation is considered, that is, what is the Year 0 pralect cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar. c. What are the project's annual cash flows during Years 1,2 , and 3 . Do not round intermeciate calculations. Round your answers to the nearest dollar. Year 1:5 Year 2:5 Year 3:$ d. Should the machine be purchased