Problem 3) (15 points) XOM inc. has completed the analysis of new machine and estimated the following cash flows. At the end of year 4, firm will complete the project and liquidate the equipment. The equipment originally cost $5M, and production and sales will require an initial $2 million investment in net operating working capital. Modification of new equipment will cost additional $1 million. At the end of year 4,75% of the machine's original cost is depreciated. The salvage value of the equipment is $3M and tax rate is 40%. Year 0 1 2 3 4 Cash Initial investment Operating Operating Operating Operating flows Outlay Cash flow 1 Cash flow 2 Cash flow 3 Cash flow 4 CFS CF C01 CO2 C03 C04 -$2 million $2 million $3 million $3 million $4 million a) What is the equipment's initial investment outlay (CF)? b) What is the NPV of the project (assume cost of capital is 12%)? Problem 3) (15 points) XOM inc. has completed the analysis of new machine and estimated the following cash flows. At the end of year 4, firm will complete the project and liquidate the equipment. The equipment originally cost $5M, and production and sales will require an initial $2 million investment in net operating working capital. Modification of new equipment will cost additional $1 million. At the end of year 4,75% of the machine's original cost is depreciated. The salvage value of the equipment is $3M and tax rate is 40%. Year 0 1 2 3 4 Cash Initial investment Operating Operating Operating Operating flows Outlay Cash flow 1 Cash flow 2 Cash flow 3 Cash flow 4 CFS CF C01 CO2 C03 C04 -$2 million $2 million $3 million $3 million $4 million a) What is the equipment's initial investment outlay (CF)? b) What is the NPV of the project (assume cost of capital is 12%)