akshu The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $820,000, and it would cost another$24,000 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 itwould be sold after 3 years for $589,000. The machine would require an increase in net working capital (inventory) of $17,500. The sprayer would not changerevenues, but it is expected to save the firm $380,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 40%. 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 37Year 1: 5Year 2: sYear 3: $c. What is the additional Year 3 cash flow (ie, the after-tax salvage and the return of working capital)?$d. If the project's cost of capital is 15%, what is the NPV of the project?SShould the machine be purchased?Yes

NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Answered: The Campbell Company is considering…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
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The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $940,000, and it would cost another $16,000 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 $626,000. The machine would require an increase in net working capital (inventory) of $16,000. The sprayer would not change revenues, but it is expected to save the firm $451,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 40%. 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.…
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