Problem 11-06 New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $970,000, and it would cost another $19,000 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $691,000. The machine would require an increase in net working capital (inventory) of $16,000. The sprayer would not change revenues, but it is expected to save the firm $412,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%.

Problem 11-06 New-Project Analysis The Campbell Campany is considering adding a robetic paint sprayer to its production line. The sprayer's base price is S970,000, and it would cost another $19,000 ta instell it. The machine falls inta the MACRS 3-year class (the applicable MACRS depreciation ates are 33.33 44.45 b 14.81%, and 7 41% d it would be 5old would equi e an increase in net working capital inventory ot $16,000 The sprayer would not change revenues, but itis expected to save the firm $412,000 per year in before-tax aperating costs, mainly labor Campbell's marginal tax rate is 30%. after 3 years for $691,000. The mechine a. What is the Year D net cash low? b. What ere the net operating cash flows in Years 1, 2, and 3? Do nat round interrnediate calculations. Round yaur answers to the nearest dallar Year 1 Year 2 Year 3 c. Wnat is the additional Year 3 cash flow (i.e, the ater-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dallar d. If the project's cost af capital is 13 %, what is the NPV of the praject? D* not round intermediate calculations. Round your answer to the nearest dollar. Should the machine be purchased? Sedee