You must evaluate a proposal to buy a new miling machine. The purchase price of the milling machine, including shipping and installation costs, is $158,000, and the equipment will be fully deprecated at the time of purchase. The machine would be sold after 3 years for $54,000. The machine would require a $3,000 increase in net operating working capital (increased Inventory less increased accounts payable). There would be no effect on revenues, but pretax tabor costs would dedine by $39,000 per year. The marginal tax rate is 25%, and the WACCS 12%. Also, the firm spent $4,500 last year mestigating the feasibility of using the machine How should the 4,500 spent last year be handled? 1. 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, II. The cost of research is an incrementalesh flow and should be induded in the analysis 11. Only the tax effect of the research expenses should be included in the analysis ty Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's the. Hence, it should not be included in the initial devestment outlay V last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis b. What is the intellement outday for the machine for capital budgeting purpose war the 100 bonus depreciation is considered that what is the Year project cash Now? Enter your newer es positive at Round your answer to the nearest der We von project's real and flows during yours 1, 2 and 37 Do not rounid intermediate calculations. Round your answers to the nearest dollar Year 2 Years her You must evaluate a proposal to buy a new miling machine. The purchase price of the milling machine, including shipping and installation costs, is $158,000, and the equipment will be fully deprecated at the time of purchase. The machine would be sold after 3 years for $54,000. The machine would require a $3,000 increase in net operating working capital (increased Inventory less increased accounts payable). There would be no effect on revenues, but pretax tabor costs would dedine by $39,000 per year. The marginal tax rate is 25%, and the WACCS 12%. Also, the firm spent $4,500 last year mestigating the feasibility of using the machine How should the 4,500 spent last year be handled? 1. 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, II. The cost of research is an incrementalesh flow and should be induded in the analysis 11. Only the tax effect of the research expenses should be included in the analysis ty Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's the. Hence, it should not be included in the initial devestment outlay V last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis b. What is the intellement outday for the machine for capital budgeting purpose war the 100 bonus depreciation is considered that what is the Year project cash Now? Enter your newer es positive at Round your answer to the nearest der We von project's real and flows during yours 1, 2 and 37 Do not rounid intermediate calculations. Round your answers to the nearest dollar Year 2 Years her
