carson electronics is currently considering whether to acquire a new machine handling machine for its manufacturing operations. The machine cost $760,000 and will be depreciated using straight-line depreciation toward a zero salvage value over tthe next five years. During the life of the machine, no new capital expenditures or investments in working capital will be required. The new materials handling machine is expected to save Carson Electronics $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 NPV and IRR? Should Carson Electronics accept the project?

C. Carson's new head of manfacturing 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?

Given
Machine cost	$ 760,000
Depreciation	Straight line
Annual cost savings	250,000
Machine life	5		The solution below corresponds to parts a and b. of the problem. To solve for part c. simply substitute $200,000 for the annual cost savings.
Salvage value (before tax)	-
Tax rate	30%
Discount rate	9%
Solution
	Year
Analysis of Cash Flows	0	1	2	3	4	5
Additional revenues (cost savings)
Less: Depreciation expense
Additional EBIT
Less: Taxes
NOPAT
Plus: Depreciation
Less: Capex		-	-	-	-
Less: Change in NWC	-	-	-	-	-	-
Project Free Cash Flow
Assessment of Project Value
NPV
IRR
Payback		years