PROJECT VALUATION Carson Electronics is currently considering whether or not to acquire a new materials-handling machine for its manufacturing operations.The machine costs $760,000 and will be depreciated using straight-line depreciation toward a zero salvage value over the next five years. During the life of the machine, no new capital expenditures or investments in working capital will be required.The new handler is expected to save Carson $250,000 per year before taxes of 30%. Carson’s CFO recently analyzed the firm’s opportunity cost of capital and estimated it to be 9%.

a. What are the annual free cash flows for the project?

b. What are the project’s net present value and internal rate of return? Is the project one that Carson should accept?

c. Carson’s new head of manufacturing was concerned about whether the new handler could deliver the promised savings. In fact, he projected that the savings might be 20% lower than projected. What are the NPV and IRR for the project under this scenario?