The Campbell Company is considering adding a robotic paint sprayer to its produc

Question

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,170,000, and it would cost another $22,000 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 $559,000. The machine would require an increase in net working capital (inventory) of $12,000. The sprayer would not change revenues, but it is expected to save the firm $392,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 40%.

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 11 %, what is the NPV of the project? Round your answer to the nearest dollar.
$   

Should the machine be purchased?
Yes or No?

Explanation / Answer

Answer Net Present value of Sprayer Year Cash flow Saving Exp. Depreciation Net Saving Tax @40% Net cash flow PVIF @ 11% PV of cash aving 0 -1204000 0 0 0 0 0 1 -1204000 1 0 392000 397294 -5294 0 392000 0.901 353192 2 0 392000 529844 -137844 0 392000 0.812 318304 3 571000 392000 176535 215465 86186 876814 0.731 640951 Net Prsent Value of Cash Flow 108447.03 1 0 year cash flow = ($1,204,000) Sprayer cost 1170000 Installation cost 22000 Working Capital 12000 Cash Flow 1204000 2 Net Operating Cash flow Year 1 392000 Year 2 392000 Year 3 305814 3 Addittional Cash Flow 571000 4 NPV of the Project = $ 108447 5 Yes, Machine should be purchased.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.