In: Finance
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $980,000, and it would cost another $23,500 to install it.
Problem 11-06
New-Project Analysis
The Campbell Company is considering adding a robotic paint
sprayer to its production line. The sprayer's base price is
$980,000, and it would cost another $23,500 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 $512,000. The machine would require
an increase in net working capital (inventory) of $15,000. The
sprayer would not change revenues, but it is expected to save the
firm $487,000 per year in before-tax operating costs, mainly labor.
Campbell's marginal tax rate is 35%.
- What is the Year 0 net cash flow?
$
- 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 |
$ |
- 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.
$
- If the project's cost of capital is 10 %, 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