You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $142,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for 573 j000. The machine would require a $4,000 increase in net operating. working capital (Increased inventory less increased accounts poyable). There would be no effect on revenues; but pretax labor costs would decline by $31,000 per year. The marginal tax rate is 25%, and the WACC is 9%. Also, the firm spent \$4,500 last year investigating the feasibility of using the machine. a. How should the $4,500 spent last year be bandled? 1. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay. II. Lost year's expenditure is considered an opportunlty cost-and does not represent an incremental cash flow, Hence, it shovld not be included in the analysis. 1II. 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. TV. The cost of research 15 an incremental cash flow and should be included in the analysis. Q. Only the tax effect of the research expenses should be included in the analysis b. What is the initial inyestment outiay for the machine for capital budgeting purposes after the 100\% bonus depreciation is considered, that is, What is the Year 0 project cash fiow? Enter your answer as a positive value. Round your onswer to the nearest dollar. 5 C. What are the project's annual cash fows during Years 1,2 , and 3 ? Do not round intermediate calculations. found your ariswers to the nearest dollar. Year 1: 5 Year 2: 5 Year 3: 5