u must evaluate a proposal to buy a new miliing machine. The purchase price of the milling machine, including shipping and instailation costs, is $130,000, and the equipment fully depreciated at the time of purchase. The machine would be sold after 3 years for $42,000. The machine would requlre a $6,000 increase in net operating working capital icreased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $41,000 per year. The marginal tax rate is $%, and the WACC is 8%. Aso, the firm spent $4,500 last year investigating the feasiblity of using the machine. a. How should the $4,500 spent last year be handied? 1. Only the tax effect of the research expenses should be included in the analysis. II. Last year's expenditure should be treated as a terminal cash flow and deait with at the end of the project's Me. Hence, it should not be included in the initial investment outlay. 1I. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash fow, Hence, it should not be included in the analysis. IV. Last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. V. The cost of research is on incremental cash flow and should be included in the analysis. b. What is the intial investment outay for the machine for capital budgeting purposes after the roow bonus depreciation is considered, that ie, what is the Year 0 oroject cact flowilintar wour answer as a posilive volue. Round your answer to the nearest dalfat. 6. What are the oroject's annual cesh fons during Vears 1,2 , and 32 Do not reund intermediate caiculationis. Round your answers to bhe nearest dollar. Year it 3 . Year 1: 3 Year 2:5 Year 3i:s d. Sinould the machine be Burchased