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6 N eBook 8. O You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $176,000, 9 O and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $57,000. The machine would require an $8,000 10 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs A-Z would decline by $47,000 per year. The marginal tax rate is 25%, and the WACC is 11%. Also, the firm spent $4,500 last year investigating the feasibility of 11. O using the machine. 12 O a. How should the $4,500 spent last year be handled? I. Only the tax effect of the research expenses should be included in the analysis. 13 O 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 ted initial investment outlay. 14. O III. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the 15. O 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. 16. O V. The cost of research is an incremental cash flow and should be included in the analysis. 17. O -Select- v 18. O b. What is the Initial investment outlay for the machine for capital budgeting purposes after the 100% bonus depreciation is considered, that is, what is the 19 O Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar. $ 20 O 21. O c. What are the project's annual cash flows during Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar. Year 1: $ 22. O Year 2: $ 23 O Year 3: $ 24. O d. Should the machine be purchased? 25 O -Select- v