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You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $116, oo0, and the equlpment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $49,000. The. machine would require a $3,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $50,000 per year. The marginal tax rate is 25%, and the WACC is 11%. Aso, the firm spent s4, s00 last year investigating the feasibilify of using the machine. a. How should the $4,500 spent last year be handied? 1. Last year's expenditure is considered a sunk cost and does not represent an incremental cash fiow. Hence, it should not be included in the analysis. 11. The cost of research is an incremental cash flow and should be included in the anolysis. III. Only the tax effect of the research expenses should be induded in the analysis. IV. Last year's expenditure should be treated as a terminal cosh fow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outiay, V. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be inciuded in the analysis: b. What is the initial investment outiay for the machine for copital budgeting purposes after the 100\% benus depreciation is considered, that is, what is the Year 0 project cash flaw? Enter your answer as a positive value. Round your answer to the nearest dollar. 6. What are the project's annual cash fows during Years 1,2 , and 3 ? Do not round intermediate calculations, Round your answers to the nearest doltar: d. Shauid the machine be purchased