Purchase Solution

# New project analysis

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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 \$1,090,000, and it would cost another \$23,500 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 \$519,000. The machine would require an increase in net working capital (inventory) of \$19,500. The sprayer would not change revenues, but it is expected to save the firm \$377,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%.
What is the Year-0 net cash flow?
\$

What are the net operating cash flows in Years 1, 2, and 3? Round your answers to the nearest dollar.
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)? Round your answer to the nearest dollar.
\$

If the project's cost of capital is 14 %, what is the NPV of the project? Round your answer to the nearest dollar.
\$

Should the machine be purchased?

##### Solution Summary

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is \$1,090,000, and it would cost another \$23,500 to install it.

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• MCom, Annamalai University
• IATA, International Air Transport Association
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