NEW PROJECT ANALYSIS You must evaluate a proposal to buy a new milling machine. The base price is $185,000, and shipping and Installation costs would add another $18,000. The machine falls into the MACRS 3-year dass, and it would be sold after 3 years for $120,250. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $4.000 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 $33,000 per year. The marginal tax rate is 35%, and the wais 10%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine a. How should the $5,000 spent last year be handled? 1. Last year's expenditure le considered as an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis 11. Last year's expenditure is considered as a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis, II. The cost of research is an incremental cash flow and should be included in the analysis IV. Only the tax effect of the research expenses should be included in the analysis V. Last year's expenditure should be treated as a terminal cash flow and dont with at the end of the projecte Hence, should not be included in the initial investment outlay 1 b. What is the initial investment outlay for the machine for capital Budgeting purposes, that is what is the Year o project cash flow? Round your answer to the nearest cent 5 What are the project's annual cash flows during Years 1, 2, and 37 Round your answer to the nearest cent. Do not round your intermediate calculations Year 15 x Year 25 X Years d. Should the machine be purchased? NO