The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $960,000, and it would cost another $22,000 to install it. The machine falls into the MACRS 3-yearclass, and it would be sold after 3 years for $451,000. 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 $12,500. Thesprayer would not change revenues, but it is expected to save the firm $331,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.a. What is the Year-0 net cash flow?$b. What are the net operating cash flows in Years 1, 2, and 3?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 13%, what is the NPV of the project?$Should the machine be purchased?-Select- V

Solution:a. Net Cash Flow for Year 0:The sprayer's starting price is $960,000.Cost of installation:…

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 4P

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