Exercise 3 Billingham Packaging is considering expanding its production capacity by purchasing a new machine, the XC-750. The cost of the XC-750 is $2.68 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $45,000 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 $10.15 million per year in additional sales, which will continue for the 10-year life of the machine. Operations: The disruption caused by the installation will decrease sales by $5.01 million this year (year (). The cost of goods for the products is 71% of their sale price. (Hint: Lost Sales should be included in the calculation together with COGS) The increased production will require additional inventory on hand of $1.12 million to be added in year ( and depleted in year 10. Human Resources: The expansion will require additional sales and administrative personnel at a cost of $1.97 million per year. Accounting: The XC-750 will be depreciated via the straight-line method over the 10-year life of the machine. Billinghams marginal corporate tax rate is 35%. Determine the incremental earnings from the purchase of the XC-750. b. Determine the free cash flow from the purchase of the XC-750. If the appropriate cost of capital for the expansion is 9.9%, compute the NPV of the purchase. a. c