You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $$130,000,$ and the equipment will be fully depreciated at the time of purchase. The machine would be sold after $3$ years for $$43,000.$ The machine would require a $$3,000$ increase in net operating working capital $($increased inventory less increased accounts payable$).$ There would be no effect on revenues, but pretax labor costs would decline by $$52,000$ 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. The cost of research is an incremental cash flow and should be included in the analysis.

II$.$ Only the tax effect of the research expenses should be included in the analysis.

III. 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.

IV$.$ 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.

V$.$ 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.

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 $0$ 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?