You are considering adding a new item to your company's line of products. The machine New Machin Costs Depreciation 2 34required to manufacture the item costs $700,000 and it falls into the three-year MACRS alvage Val in 4 years classification. The MACRS three-year depreciation rates are 33%, 45%, 15%, and 7%. The new item would result in a $90,000 increase in accounts receivable, a $70,000 increase in inventory and a $60,000 increase in accounts payable. You plan to market the items for four years and then sell the machine for $150,000. You expect to sell 80,000 items per year at a price of $11 per item You expect manufacturing costs to be $5 per item and fixed costs to be $120,000 per year. If the tax rate is 40% and your company's weighted average cost of capital is 14% per year, what is the net present value of selling the new item? What should you do? Working Capital 5 Accts. Receivable Units Price Var. Costs Fixed NOW Tau Rate B Equipment 9 Workina Capital Initial Cash F 2 Sales Variable Costs 4 Fixed Costs 6 EBIT 8 NOPAT o operatine Cash Flow 2 Workire capital 3 Equipment sale 4 Tax on equipment sale 5 Teminal cash tlow 7 Total project cash flow