The Harris Company is evaluating the proposed acquisition of a new milling machine. The machine's base price is $108,000, and it would cost another $12,500 to modify it for special use by your firm. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000.
The machine would require an increase in net operating working capital (inventory) of $5,500. The milling machine would have no effect on revenues, but it is expected to save the firm $44,000 per year in before-tax operating costs, mainly labor.
Harris's marginal tax rate is 35 percent.
What is the net cost of the machine for capital budgeting purposes? (That is, what is the Year 0 net cash flow?)