Problem Walk$-$Through

New$-$Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The $ prayer's base price is $$800,000,$ and is would cost another $$24,500$ to instal z$.$ The machine falls into the MACRS $3-$year class, and it would be sold after $3$ years for $$566,000.$ The MACRS rates for the first three years are $0\mathrm{.}3333,0\mathrm{.}445,$ and $0\mathrm{.}1431.$ The mactine would require an increase in net working capital $($inventory$)$ of $$16,000.$ The sprayer would not change revenues, but it is expected to save the firm $$380,000$ per rear 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.

a$.$ What is the Year$-0$ net cash flow?

$ $$

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

Year $1$:$5$

Year $2$:$

Year $3$:$ $q,$

c$.$ What is the additional Year$-3$ cash flow $($i$.$e$,$ 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?

$ $q,$

Should the machine be purchased?

$-$Select$-$

$6$