1. Windsor Co. is a global manufacturer of printing and imaging equipment. It is now considering the purchase and installation of new automated machinery to recycle and remanufacture toner- and printer cartridges. The companys current recycling process consists of a sequence of operations carried out almost entirely by hand, with the help of hand tools and a simple machine. The investment proposal calls for replacing this process with new automated machinery that costs an estimated 3.5 million dollars fully installed.

The new equipment could process the companys projected volume using fewer employees, resulting in savings of both direct labor and training costs. It also would require only minimal maintenance expenditures compared to the equipment it replaces, and no significant change in working capital. The following table compares projected operating data for the existing recycling process and the proposed automated process, assuming an inflation of 7% per year.

The new equipment would have a useful life of 10 years and would be depreciated under the straight-line method for both tax and financial reporting purposes. Salvage value is likely to equal disposal costs at the end of the useful life. The manual equipment being replaced would last many more years. Currently, it has a book value of 250,000 dollars, and three years of straight-line depreciation remaining. However, its market value is thought to be at about 175,000 dollars. The firms tax rate is 35%.

1. Calculate the free cash flows each year associated with this proposed investment.
2. If the discount rate is 12%, should the company go ahead with the proposal?
3. If the discount rate is 25%, is the proposal still acceptable? Why or why not?

Campari af Prajected Operating Data for Dillercat Reese ing Praesex (housands of dollars, kaked) Year Year 4 Years Year War Years Year Prajeed Operating Cat 000 426 600 50 6A 50 460 460 CA Malick Dicle Overal 564.816 1.15.184 1.680.000 664788 1,312.572 1.797.600 78.456 LS44.297 1923.422 920951 L818.34 2058.072 08:5.417 1.045.07 2.212.137 1.054976 2.081.821 L128204 2.227.540 2.52227 L20717 2381479 2.697.73 L291681 2.550,321 288655 1.382099 2.78843 3,08611 1.1383 2.244 1.2185 2.4057 L30 2.5741 1.39.50 2.7543 1.427 2.947 L5921 21594 L7090 23742 1826 3.6104 19566 361 2.0935 4.1335 Dista Prajeed Operating Cab New Alamaties Un volane (0001 545 600 660 600 660 660 CA Dicle $42.223 524,136 1.566 68197 616909 1.67586 750 LS 736101 L799,95 884113 854621 L918.676 914.45 2.052.081 1012.221 978.456 2.1%.012 L082076 L046948 2.350.400 LL58891 L120.234 251490 240014 198651 269042 1,326815 1.282.556 2.872415 Maritha Dick 1.0992 1.0.567 1.1697 1.1107 L2516 L2008 1.3392 12945 1.43110 1..3852 LS233 14821 1.7554 169 18783 18157 2.0098 1.1427 158.92 + Campari af Prajected Operating Data for Dillercat Reese ing Praesex (housands of dollars, kaked) Year Year 4 Years Year War Years Year Prajeed Operating Cat 000 426 600 50 6A 50 460 460 CA Malick Dicle Overal 564.816 1.15.184 1.680.000 664788 1,312.572 1.797.600 78.456 LS44.297 1923.422 920951 L818.34 2058.072 08:5.417 1.045.07 2.212.137 1.054976 2.081.821 L128204 2.227.540 2.52227 L20717 2381479 2.697.73 L291681 2.550,321 288655 1.382099 2.78843 3,08611 1.1383 2.244 1.2185 2.4057 L30 2.5741 1.39.50 2.7543 1.427 2.947 L5921 21594 L7090 23742 1826 3.6104 19566 361 2.0935 4.1335 Dista Prajeed Operating Cab New Alamaties Un volane (0001 545 600 660 600 660 660 CA Dicle $42.223 524,136 1.566 68197 616909 1.67586 750 LS 736101 L799,95 884113 854621 L918.676 914.45 2.052.081 1012.221 978.456 2.1%.012 L082076 L046948 2.350.400 LL58891 L120.234 251490 240014 198651 269042 1,326815 1.282.556 2.872415 Maritha Dick 1.0992 1.0.567 1.1697 1.1107 L2516 L2008 1.3392 12945 1.43110 1..3852 LS233 14821 1.7554 169 18783 18157 2.0098 1.1427 158.92 +