Question: You are evaluating a proposal to buy a new machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The

You are evaluating a proposal to buy a new machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine is depreciated using prime cost method (3 years useful life), and it would be sold after 3 years for $60,000. The machine would require a $5,500 increase in net operating working capital (in year 0) and this will be returned at the end of year 3. The pre-tax labour costs would decline by $44,000 per year. The marginal tax rate is 35% and the WACC is 12%.

(1)Whataretheprojectsannualcashflowsduringyears0,1,2and3?
(2)CalculateNPVandadvisewhetherthisprojectshouldbeacceptedbasedonitsNPV

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