New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $920,000, and it would cost another $24,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $616,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $14,000. The sprayer would not change revenues, but it is expected to save the firm $390,000 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.

1. What is the Year-0 net cash flow?

   $

2. What are the net operating cash flows in Years 1, 2, and 3?

   Year 1:	$
   Year 2:	$
   Year 3:	$

3. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)?

   $

4. If the project's cost of capital is 12%, what is the NPV of the project?

   $

   Should the machine be purchased?

New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $920,000, and it would cost another $24,000 to Install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $616,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (Inventory) of $14,000. The sprayer would not change revenues, but it is expected to save the firm $390,000 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. 2. What is the Year 0 net cash flow? $ b. What are the net operating cash flows in Years 1, 2, and 3? Year 1:$ Year 2:$ Year 3:$ C: What is the additional Year 3 cash flow (le, the after-tax salvage and the return of working capital)? $ d. If the project's cost of capital is 12%, what is the NPV of the project? $ Should the machine be purchased? B