The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $800,000, and it would cost another $17,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $595,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $800,000, and it would cost another $17,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $595,000. 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 $18,500. 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 25%. (Ignore the half-year convention for the straight-line method.)
-
What is the Year-0 net cash flow?
$
-
What are the net operating cash flows in Years 1, 2, and 3?
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)?
$
-
If the project's cost of capital is 15%, what is the NPV of the project?
$
Should the machine be purchased?
(please only provide answer for 4)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
