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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 casts, is s184,060, and the equipment will be ratly depreciated at the time of purchase. The machine wocld be sold after 3 years for $85,000. The machine would require a $9,500 increase in net operating workong capital (increased irventory less increased accounts payable), There would be no effect on revenues, but pretax labor costs would docline by 531,000 per year, The marginai tax rate is 25%, and the WACC is 8%. Also, the firm spent $4,500 last year investigating the feasibllity of using the inachine. a. How should the $4,500 spent last vear be handled? 1. Only the tax effect of the research expenses should be included in the analysis. II. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial invertment outtay: 111. Last vear't expenditure is considered an opportunity cost and does not represent an incremental cash faw. Hence, it should not be included in the analysis. IV. Last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. V. The cost of retearch is an incremental cash flow and should be included in the analysis. b. What is the initial investment outiay for the machine for capeal budgeting purposes after the 100w bonus depreciation is considernd, that is, what is the rear 0 project s. c. What are the project's annuel cash flows during Years 1, 2, and 37 Do not round intermediatn calculations. Round your answers to the neareit dollar. Year 1: 5 rear 2 is Year 3 is d. Should the machine be purchiased