13-12 New-Project Analysis Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs by $110,000 annually. Mad- ison would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $33,000 at the end of its 5-year operating life. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%, as discussed in Appendix 13A. Working capital would increase by $35,000 initially, but it would be recovered at the end of the project's 5-year life. Madison's marginal tax rate is 40%, and a 10% cost of capital is appropriate for the project. 2. Calculate the project's NPV, IRR, MIRR, and payback. b. Assume management is unsure about the $110,000 cost savings-this figure could deviate by as much as plus or minus 20%. What would the NPV be under each of these extremes? c. Suppose the CFO wants you to do a scenario analysis with different val- ues for the cost savings, the machine's salvage value, and the working capital (WC) requirement. She asks you to use the following probabilities and values in the scenario analysis: Scenario WC Worst case Probability Cost Savings Salvage Value 0.35 $ 88,000 $28,000 0.35 110,000 33,000 $40,000 Base case 35,000 Best case 0.30 132,000 38,000 30,000 Calculate the project's expected NPV, its standard deviation, and its coef- ficient of variation. Would you recommend that the project be accepted