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New-Project Analysis
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $830,000, and it would cost another $22,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $485,000. 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 $17,500. The sprayer would not change revenues, but it is expected to save the firm $351,000 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.)
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What is the Year-0 net cash flow?
$
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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)?
$
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If the project's cost of capital is 12%, what is the
NPV of the project?$
Step by stepSolved in 3 steps with 18 images
4. If the project's cost of capital is 12%, what is the NPV of the project?
$ 209,845
I'm still trying to figure out this last part. The homework says this is wrong, but I cannot follow your work to see if there is just an error in the decimals. Please explain how you got this last part.
4. If the project's cost of capital is 12%, what is the NPV of the project?
$ 209,845
I'm still trying to figure out this last part. The homework says this is wrong, but I cannot follow your work to see if there is just an error in the decimals. Please explain how you got this last part.
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