. Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is $2.79 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $49,000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates: Marketing: Once the XC-750 is operating next year, the extra capacity is expected to generate $10.05 million per year in additional sales, which will continue for the ten-year life of the machine. Operations: The disruption caused by the installation will decrease sales by $4.96 million this year. As with Billingham?s existing products, the cost of goods for the products produced by the XC-750 is expected to be 71% of their sale price. The increased production will also require increased inventory on hand of $1.18 million during the life of the project. The increased production will require additional inventory of $1.18 million, to be added in year 0 and depleted in year 10. Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2.07 million per year. Accounting: The XC-750 will be depreciated via the straight-line method in years 1210. Receivables are expected to be 14% of revenues and payables to be 9% of the cost of goods sold. Billingham?s marginal corporate tax rate is 15%. a. Determine the incremental earnings from the purchase of the XC-750. b. Determine the free cash flow from the purchase of the XC-750. c. If the appropriate cost of capital for the expansion is 9.6%, compute the NPV of the purchase. d. While the expected new sales will be $10.05 million per year from the expansion, estimates range from $8.1 million to $12 million. What is the NPV in the worst case? In the best case? e. What is the break-even level of new sales from the expansion? What is the break-even level for the cost of goods sold? f. Billingham could instead purchase the XC-900, which offers even greater capacity. The cost of the XC-900 is $4.09 million. The extra capacity would not be useful in the first two years of operation, but would allow for additional sales in years 3-10. What level of additional sales (above the $10.05 million expected for the XC-750) per year in those years would justify purchasing the larger machine? a. Determine the incremental earnings from the purchase of the XC-750. Calculate the incremental earnings from the purchase of the XC-750 below: (Round to the nearest dollar.) Incremental Earnings Year 0 Sales Revenues $ (4,960,000) 3,521,600 Cost of Goods Sold $ S, G, and A Expenses $ 0 Depreciation $ 0 EBIT $ (1,438,400) 215,760 Taxes at 15% $ Unlevered Net Income $ (1,222,640) (Round to the nearest dollar.) Incremental Earnings Year 1-10 Sales Revenues $ 10050000 Cost of Goods Sold $ -6528400 S, G, and A Expenses $ -3521600 Depreciation $ -279000 EBIT $ 279000 Taxes at 15% $ -41850 237150 $ Unlevered Net Income . Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is $2.79 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $49,000 feasibility study to analyze the decision to buy the XC-750, resulting in the following estimates: Marketing: Once the XC-750 is operating next year, the extra capacity is expected to generate $10.05 million per year in additional sales, which will continue for the ten-year life of the machine. Operations: The disruption caused by the installation will decrease sales by $4.96 million this year. As with Billingham?s existing products, the cost of goods for the products produced by the XC-750 is expected to be 71% of their sale price. The increased production will also require increased inventory on hand of $1.18 million during the life of the project. The increased production will require additional inventory of $1.18 million, to be added in year 0 and depleted in year 10. Human Resources: The expansion will require additional sales and administrative personnel at a cost of $2.07 million per year. Accounting: The XC-750 will be depreciated via the straight-line method in years 1210. Receivables are expected to be 14% of revenues and payables to be 9% of the cost of goods sold. Billingham?s marginal corporate tax rate is 15%. a. Determine the incremental earnings from the purchase of the XC-750. b. Determine the free cash flow from the purchase of the XC-750. c. If the appropriate cost of capital for the expansion is 9.6%, compute the NPV of the purchase. d. While the expected new sales will be $10.05 million per year from the expansion, estimates range from $8.1 million to $12 million. What is the NPV in the worst case? In the best case? e. What is the break-even level of new sales from the expansion? What is the break-even level for the cost of goods sold? f. Billingham could instead purchase the XC-900, which offers even greater capacity. The cost of the XC-900 is $4.09 million. The extra capacity would not be useful in the first two years of operation, but would allow for additional sales in years 3-10. What level of additional sales (above the $10.05 million expected for the XC-750) per year in those years would justify purchasing the larger machine? a. Determine the incremental earnings from the purchase of the XC-750. Calculate the incremental earnings from the purchase of the XC-750 below: (Round to the nearest dollar.) Incremental Earnings Year 0 Sales Revenues $ (4,960,000) 3,521,600 Cost of Goods Sold $ S, G, and A Expenses $ 0 Depreciation $ 0 EBIT $ (1,438,400) 215,760 Taxes at 15% $ Unlevered Net Income $ (1,222,640) (Round to the nearest dollar.) Incremental Earnings Year 1-10 Sales Revenues $ 10050000 Cost of Goods Sold $ -6528400 S, G, and A Expenses $ -3521600 Depreciation $ -279000 EBIT $ 279000 Taxes at 15% $ -41850 237150 $ Unlevered Net Income