New-Project Analysis The Campbell Company is considering adding a robotic paint
ID: 2751485 • Letter: N
Question
New-Project Analysis
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,040,000, and it would cost another $17,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $616,000. The MACRS rates for the first three years are 0.3333, 0.4445, 0.1481, and 0.0741. The machine would require an increase in net working capital (inventory) of $16,500. The sprayer would not change revenues, but it is expected to save the firm $424,000 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 10 %, what is the NPV of the project? Round your answer to the nearest dollar.
$
Should the machine be purchased?
Explanation / Answer
New-Project Analysis The Campbell Company is considering adding a robotic paint