Problem 11-6 New-Project Analysis The Campbell Company is considering adding a r

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Problem 11-6 New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer.........ONLY -->D-part is wrong; please someone help me to get correct answer; I am posting this question 2nd time to get correct answer.

Problem 11-6 New-Project Analysis The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $870,000, and it would cost another $17,500 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 $535,000 The machine would require an increase in net working capital (inventory of $14,500 The sprayer would not change revenues, but it is expected to save the firm $421,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 35% a. What is the Year-0 net cash flow? $9 90200 b. What are the net operating cash flows in Years 1, 2, and 3? Round your answers to the nearest dollar. Year 1 $37718 $41172 $31965 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)? Round your answer to the nearest dollar. $38526:C d. If the project's cost of capital is 14 %, what is the NPV of the project? Round your answer to the nearest dollar $24075 Should the machine be purchased? Yes

Explanation / Answer

1.Year0 cash flows (870,000+17500+14500)=$ 902,000

2.

3.Additional year cash flows =$ 347750+14500=$362250

4.

5. Project should be accepted since it gives positive NPV

Cash flows occurred during the period Year             1             2             3 Savings before tax 421,000 421,000 421,000 Depreciation 295,804 394,938 131,439 PBT 125,196     26,063 289,561 Tax@35%     43,819       9,122 101,346 PAT     81,378     16,941 188,215 ADD:Depreciation 295,804 394,938 131,439 Free Cash flows 377,181 411,878 319,654 Depreciation computation Year             1             2             3 cost 887,500 887,500 887,500 Depreciation rate 0.3333 0.4450    0.1481    Depreciation 295,804 394,938 131,439

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