Question
You must evaluate a proposal to buy a new milling machine. The base price is $184,000, and shipping and installation costs would add another $10,000.
You must evaluate a proposal to buy a new milling machine. The base price is $184,000, and shipping and installation costs would add another $10,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $82,800. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $6,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $52,000 per year. The marginal tax rate is 35%, and the WACC is 14%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.
What are the project's annual cash flows during Years 1, 2, and 3? Round your answers to the nearest cent. Do not round your intermediate calculations.
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