The Campbell Company is considering adding a robotic paint sprayer to its produc
ID: 2713228 • Letter: T
Question
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $910,000, and it would cost another $21,000 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 $532,000. The machine would require an increase in net working capital (inventory) of $10,000. The sprayer would not change revenues, but it is expected to save the firm $494,000 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.
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 15 %, what is the NPV of the project? Round your answer to the nearest dollar.
$
Should the machine be purchased?
-Select-YesNoItem 7
Explanation / Answer
What is the Year-0 net cash flow?
Year-0 net cash flow = -sprayer's base price - Installation Cost - increase in net working capital
Year-0 net cash flow = - 910000-21000-10000
Year-0 net cash flow = -941000
What are the net operating cash flows in Years 1, 2, and 3? Round your answers to the nearest dollar.
Net operating cash flows in Years 1 = Saving in before-tax operating costs *(1-tax rate) + Machine Cost*Depreciation rate*Tax rate
Net operating cash flows in Years 1 = 494000*(1-30%) + (910000+21000)*33.33%*30%
Net operating cash flows in Years 1 = $ 438,891
Net operating cash flows in Years 2 = Saving in before-tax operating costs *(1-tax rate) + Machine Cost*Depreciation rate*Tax rate
Net operating cash flows in Years 2 = 494000*(1-30%) + (910000+21000)*44.45%*30%
Net operating cash flows in Years 2 = $ 469,949
Net operating cash flows in Years 3= Saving in before-tax operating costs *(1-tax rate) + Machine Cost*Depreciation rate*Tax rate
Net operating cash flows in Years 3 = 494000*(1-30%) + (910000+21000)*14.81%*30%
Net operating cash flows in Years 3 = $ 387,164
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.
Additional Year-3 cash flow = Salvage Value - Tax rate*( Salvage Value - Book Value) + Working Capital
Additional Year-3 cash flow = 532000 - 30%*(532000- (910000+21000)*7.41%) + 10000
Additional Year-3 cash flow = $ 403,096
If the project's cost of capital is 15 %, what is the NPV of the project? Round your answer to the nearest dollar.
NPV of the project = - 941000 + 438891/1.15 + 469949/1.15^2 + 387164/1.15^3+ 403096/1.15^3
NPV of the project = $ 315,602
Should the machine be purchased?
Yes
Year 1 $ 438,891 Year 2 $ 469,949 Year 3 $ 387,164Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.