22. (10 Points) This is a show your work problem in three (3) parts. Your answer must be clear and you must show your work for each part to receive full credit.

Compton Brewery (CB) is considering buying a new goobering machine for $300,000. It will be fully depreciated using MACRS seven-year asset class for depreciation. Shipping and transportation to the factory will cost $45,000. Running the machine will require an immediate increase in working capital (inventory) of $7,000. The machine will increase annual sales revenue by $80,000, and will decrease annual costs by $20,000. The new machine will require a $3,500 additional investment in net working capital (inventory) each year for years 2, 3 and 4. The machine can be sold at the end of the 4^th year for 80% of its book value. The tax rate is 35%.

a. Calculate the net initial investment in year zero?

b. Calculate the net cash flow for the 3^rd year of new machines life.

c. Calculate the terminal cash flow when the company terminates the project and sells the machine at the end of the 4^th year.

c. Value resources at their opportunity cost.

d. Ignore sunk costs.