The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $920,000, and it would cost another $21,000 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 $617,000. The machine would require an increase in net working capital (inventory) of $13,500. The sprayer would not change revenues, but it is expected to save the firm $391,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%. 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 12 %, what is the NPV of the project? $ Should the machine be purchased? -Select-
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $920,000, and it would cost another $21,000 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 $617,000. The machine would require an increase in net working capital (inventory) of $13,500. The sprayer would not change revenues, but it is expected to save the firm $391,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%. 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 12 %, 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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Question
57
Transcribed Image Text:New-Project Analysis
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is
$920,000, and it would cost another $21,000 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
$617,000. The machine would require an increase in net working capital (inventory) of $13,500. The sprayer would not
change revenues, but it is expected to save the firm $391,000 per year in before-tax operating costs, mainly labor.
Campbell's marginal tax rate is 30%. 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 12 %, what is the NPV of the project?
$
Should the machine be purchased?
-Select- +
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