The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $980,000, and it would cost another $19,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $645,000. 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 $ 378,000 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? c Year 1: d $ e Year 2: f $ g Year 3: h $ ij What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)? $k If the project's cost of capital is 12%, what is the NPV of the project? $ Should the machine be purchased? -Select- Yes No

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $980,000, and it would cost another $19,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $645,000. 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 $ 378,000 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? c Year 1: d $ e Year 2: f $ g Year 3: h $ ij What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)? $k If the project's cost of capital is 12%, what is the NPV of the project? $ Should the machine be purchased? -Select- Yes No

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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Beryl's Iced Tea currently rents a bottling machine for $52,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options: a. Purchase the machine it is currently renting for $150,000. This machine will require $24,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $255,000. This machine will require $20,000 per year in ongoing maintenance expenses and will lower bottling costs by $15,000 per year. Also, $38,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 7% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The corporate tax rate is 25%. Should Beryl's Iced Tea continue…
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Beryl's Iced Tea currently rents a bottling machine for $53,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options: a. Purchase the machine it is currently renting for $150,000. This machine will require $20,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $255,000. This machine will require $17,000 per year in ongoing maintenance expenses and will lower bottling costs by $12,000 per year. Also, $38,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 8% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The corporate tax rate is 28%. Should Beryl's Iced Tea continue…
shobha
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An existing robot can be kept if $2,000 is spent now to upgrade it for future service requirements. Alternatively, the company can purchase a new robot to replace the old robot. The estimates shown in the Table have been developed for both the defender and the challenger. The company’s before-tax MARR is 20% per year. Based on this information, should the existing robot be replaced right now? Assume the robot will be needed for an indefinite period of time.
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