New$-$Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its

production line. The sprayer's base price is $$830,000,$ and it would cost another

$$19,000$ to install it$.$ The machine falls into the MACRS $3-$year class, and it would

be sold after $3$ years for $$631,000.$ The MACRS rates for the first three years are

$0\mathrm{.}3333,0\mathrm{.}4445,$ and $0\mathrm{.}1481.$ The machine would require an increase in net

working capital $($inventory$)$ of $$19,000.$ The sprayer would not change revenues,

but it is expected to save the firm $$324,000$ per year in before$-$tax operating

costs, mainly labor. Campbell's marginal tax rate is $25\%.($Ignore the half$-$year

convention for the straight$-$line method.$)$ Cash outflows, if any, should be

indicated by a minus sign. Do not round intermediate calculations. Round your

answers to the nearest dollar.

$($a$)$ What is the Year$-0$ net cash flow?

$

$($b$)$ What are the net operating cash flows in Years $1,2,$ and $3?$

$($c$)$ What is the additional Year$-3$ cash flow $($i$.$e$.,$ the after$-$tax salvage and the

return of working capital$)?$

$

$($d$)$ If the project's cost of capital is $11\%,$ what is the NPV of the project?

$

Should the machine be purchased?