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1) Wilson Machine Tools is considering purchasing a high-tech computer-controlled milling machine at a cost of $95,000. The cost of installing the machine, preparing the site, wiring, and rearranging other equipment is expected to be $15,000. This installation cost will be added to the cost of the machine to determine the total cost basis ($110,000) for depreciation. The milling machine is expected to last 10 years. The machine is classified as a seven-year MACRS property. The milling machine will have a $10,000 salvage value at the end of its life. Special jigs and tool dies for the particular product also will be required at a cost of $10,000, and the jigs and dies last only five years. Therefore, another set of jigs has be purchased at the end of five years, so you should also include the purchase of jigs and dies as another investment in year 5. There is no salvage or disposal cost for the jigs and dies. The jigs and dies are classified as a three-year MACRS property, and you need to depreciate them twice (the first time in years 1 through 4 and the second time in years 6 through 9). It will be easier to have separate rows for depreciating the milling machine and depreciating the jigs and dies. With the new milling machine, Wilson expects an additional annual revenue of $80,000 due to increased production. The additional annual production costs are estimated as follows: materials, $9,000; labor $15,000; energy, $4,500; and miscellaneous O&M costs, $3,000. Wilsons marginal income-tax rate is expected to remain at 35% over the project life of 10 years. All dollar figures given above represent todays (constant) dollars. The expected general inflation rate during the project period is estimated at 6%, which applies to the revenue, the expenses (materials, labor, energy, O&M), the salvage value, and the cost of purchasing the jigs and dies at the end of 5 years. a) Determine the project cash flows for 10 years in actual dollars. To check your work, the cash flow in year 5 should be $ 32,243 and in year 6, it should be $49,714. b) Determine the project cash flows for 10 years in todays (constant) dollars. c) Determine the inflation-free rate of return (IRR). If Wilsons inflation-free interest rate (MARR) is 18%, should the company pursue this project?