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Problem 11-06 New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,140,000, and it would cost another $23,500 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $547,000. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $381,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%.   What is the Year 0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar. Year 1 $ Year 2 $ Year 3 $   What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar. $ If the project's cost of capital is 12 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Should the machine be purchased?

Problem 11-06 New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,140,000, and it would cost another $23,500 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $547,000. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $381,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%.   What is the Year 0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar. Year 1 $ Year 2 $ Year 3 $   What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar. $ If the project's cost of capital is 12 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Should the machine be purchased?

Essentials Of Investments
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
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Problem 11-06
New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,140,000, and it would cost another $23,500 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $547,000. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $381,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%.

 

    1. What is the Year 0 net cash flow?
      $



    1. What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.
      Year 1 $
      Year 2 $
      Year 3 $

 

    1. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar.
      $



  1. If the project's cost of capital is 12 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.
    $

    Should the machine be purchased?
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