Wells printing is considering the purchase of a new printing press. The total installed cost of the press is $2,130,000. This outlay would be partially offset by the sale of an exising press. The old press has zero book value, cost of $1.06 million dollars 10 years ago, and can be sold currently for $1.21 million before taxes. As a result of acquistion of the new press, sales in each of the next 5 years are expected to be $1.62 million higher than with the expisting press, but product costs (excluding the depreciation) will represent 45% of sales. The new press will not afect the firms net working capital requirements. The new press will be depreciated under MACRS using a 5-year recovery period (20%, 32%, 19%, 12%, 12% and 5% respectively). The firm is subject to a 40% tax rate. Wells Printing cost of capital is 11.5%. (Note: assume that the old and new presses will each have a terminal value of $0 at the end of year 6.)

a.) Determine the initial investment required by the new press.

Initial investment will be :

Installed cost of new press		$
Proceeds from sale of existing press	$
Taxes on sale of existing press	$
Total after-tax proceeds from sale		$
Initial investment		$

b.) Determind the operating cash inflows attributable to the new press. (Note: Be sure to consider the depreciation in year 6.)

year	1	2	3	4	5	6
Revenues
Expenses
Depreciation
Net profits before taxes
Taxes
Net profits after taxes
Operating cash inflows

c.) determine the payback period