Capital Budgeting Problems (Spillane bagpipes involves revenue-generating and cost saving project) It's early November, 2021. Spillane Bagpipes manufactures synthetic and traditional wooden bagpipes. A new computerized lathe has made it possible to rough out the basic form in a fraction of the time normally required by hand work. Not only will this machine allow labor savings on existing products, but it will also allow the firm to produce a low-cost synthetic bagpipe to meet the low-budget market. The equipment will cost $83,600, including shipping of $3,000. Another $4,000 must be paid for installation. The asset's estimated salvage value at the end of the project is zero. Estimated sales of new products derived from the new machine are as follows: Operating expenses other than depreciation are estimated at $10,000 annually plus 25% of sales. As a result of the higher level of production and sales, accounts receivable is expected to increase by $7,000, inventory must increase by $15,000, and accounts payable will increase by $4,000. As already noted, labor costs associated with certain existing products will be reduced by 20% by using the new machine. Those annual labor costs (not the savings) are estimated at $18,000 annually in 2022 and 2023 , and $24,000 annually in 2024 and 2025 . Assume the 5-year MACRS depreciation schedule applies. The firm's marginal tax rate is 40% and the cost of capital related to this project is 17\%. Evaluate this project by the NPV, IRR and Payback methods. The maximum acceptable payback period is 3 years. Capital Rationing Problem: Damaris Corp has identified the following prospective capital budgeting projects for the coming year. If it has set a capital budgeting limit of $25m, which projects should it accept? All values are in millions of dollars