Question

New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $870,000, and it would cost another $25,000 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $699,000. The machine would require an increase in net working capital (inventory) of $16,500. The sprayer would not change revenues, but it is expected to save the firm $376,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 35%.

a. What is the Year 0 net cash flow?
$

b. What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.

Year 1	$
Year 2	$
Year 3	$

c. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar.
$

d. If the project's cost of capital is 15 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.
$

Should the machine be purchased?
-Select-Yes OR No

Answer 1

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