You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $167,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $62,000. The machine would require an $8,500 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 $38,000 per year. The marginal tax rate is 25%, and the WACC is 10%. 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 handled? I. Only the tax effect of the research expenses should be included in the analysis. II. 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. III. 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. IV. 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. V. The cost of research is an incremental cash flow and should be included in the analysis. -Select- b. What is the initial investment outlay for the machine for capital budgeting purposes after the 100% bonus depreciation is considered, that is, what is the Year O project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar. $ c. What are the project's annual cash flows during Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar. Year 1: $ Year 2: $ Year 3: $ d. Should the machine be purchased? -Select- The Dauten Toy Corporation currently uses an injection molding machine that was purchased prior to the new tax legislation. This machine is being depreciated on a straight-line basis, and it has 6 years of remaining life. Its current book value is $2,400, and it can be sold for $2,600 at this time. Thus, the annual depreciation expense is $2,400/6 = $400 per year. If the old machine is not replaced, it can be sold for $500 at the end of its useful life. Dauten is offered a replacement machine which has a cost of $8,000, an estimated useful life of 6 years, and an estimated salvage value of $800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase. The replacement machine would permit an output expansion, so sales would rise by $1,000 per year; even so, the new machine's much greater efficiency would cause operating expenses to decline by $1,000 per year. The new machine would require that inventories be increased by $2,000, but accounts payable would simultaneously increase by $800. Dauten's marginal federal-plus-state tax rate is 25%, and its WACC is 11%. What is the NPV of the incremental cash flow stream? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest cent. $ Should the company replace the old machine? -Select- St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $27,000 to $56,000 per year. The new machine will cost $87,500, and it will have an estimated life of 8 years and no salvage value. The new riveting machine is eligible for 100% bonus depreciation at the time of purchase. The applicable corporate tax rate is 25%, and the firm's WACC is 12%. The old machine has been fully depreciated and has no salvage value. What is the NPV of the project? Negative value, if any, should be indicated by a minus sign. Round your answer to the nearest cent. $ Should the old riveting machine be replaced by the new one? -Select- The Darlington Equipment Company purchased a machine 5 years ago, prior to the TCJA, at a cost of $80,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $8,000 per year. If the machine is not replaced, it can be sold for $15,000 at the end of its useful life. A new machine can be purchased for $180,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $45,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless. The new machine is eligible for 100% bonus depreciation at the time of purchase. The old machine can be sold today for $60,000. The firm's tax rate is 25%. The appropriate WACC is 9%. a. If the new machine is purchased, what is the amount of the initial cash flow at Year 0 after bonus depreciation is considered? Cash outflow should be indicated by a minus sign. Round your answer to the nearest dollar. $ b. What are the incremental cash flows that will occur at the end of Years 1 through 5? Round your answers to the nearest dollar. Year 1 Year 2 Year 3 Year 4 Year 5 $ $ $ $ $ c. What is the NPV of this project? Do not round intermediate calculations. Round your answer to the nearest cent. $ Should Darlington replace the old machine? -Select