In: Finance
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 $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
$538,000. 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 $410,000 per year in
before-tax operating costs, mainly labor. Campbell's marginal tax
rate is 30%.
- 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 11 %, 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-YesNo