6. Problem 11-06 (New-Project Analysis) eBook New-Project Analysis Problem Walk-Through The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,050,000, and it would cost another $20,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $613,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $19,000. The sprayer would not change revenues, but it is expected to save the firm $400,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. a. What is the Year-0 net cash flow? b. What are the net operating cash flows in Years 1, 2, and 3? Year 1:$ Year 2:$ Year 3:$ 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 13%, what is the NPV of the project? Should the machine be purchased? -Select-
6. Problem 11-06 (New-Project Analysis) eBook New-Project Analysis Problem Walk-Through The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,050,000, and it would cost another $20,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $613,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $19,000. The sprayer would not change revenues, but it is expected to save the firm $400,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar. a. What is the Year-0 net cash flow? b. What are the net operating cash flows in Years 1, 2, and 3? Year 1:$ Year 2:$ Year 3:$ 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 13%, what is the NPV of the project? Should the machine be purchased? -Select-
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:6. Problem 11-06 (New-Project Analysis)
eBook
New-Project Analysis
Problem Walk-Through
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,050,000, and it would cost another $20,500 to install it. The machine falls into the
MACRS 3-year class, and it would be sold after 3 years for $613,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital
(inventory) of $19,000. The sprayer would not change revenues, but it is expected to save the firm $400,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%.
(Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.
a. What is the Year-0 net cash flow?
b. What are the net operating cash flows in Years 1, 2, and 3?
Year 1:$
Year 2:$
Year 3:$
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 13%, what is the NPV of the project?
Should the machine be purchased?
-Select-
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