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The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s...

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer’s base price is $920,000, and it would cost another $20,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $500,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $304,000 per year in before-tax operating costs, mainly labor. Campbell’s marginal tax rate is 25%.

  1. What is the Year-0 cash flow?

    Book Answer −$955,500.

  2. What are the cash flows in Years 1, 2, and 3?

    Book Answer $306,326, $332,458, $262,804.

  3. What is the additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)?

    Book Answer 407,759.50.

  4. If the project’s cost of capital is 12%, what is the NPV?

Book answer is NPV = $60,331; Purchase.

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jeff jeffy answered 5 months ago
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