# Business problems, net cash flow, new prject 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 \$24,500 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 \$611,000. The machine would require an increase in net working capital (inventory) of \$12,500. The sprayer would not change revenues, but it is expected to save the firm \$488,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%.

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Problem 11-06 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 \$24,500 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 \$611,000. The machine would require an increase in net working capital (inventory) of \$12,500. The sprayer would not change revenues, but it is expected to save the firm \$488,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%. a. What is the Year 0 net cash flow? \$ b.What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar. Year 1 \$ 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)? Do not round intermediate calculations. Round your answer to the nearest dollar. \$ d.If the project's cost of capital is 13 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar. \$ Should the machine be purchased? -Select-YesNo ...
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Tutortitus
School: University of Maryland

Hello buddy, attached are the solutions to the assignment. Kindly go through it and ask where there is need for clarification. Thank you

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Problem 11-06
New-Project Analysis

a.
0 year cash flow = - (Initial investment + installation cost + Net working capital)
= - (\$1,090,000+\$ \$24,500 +\$ 12,500)
= - \$1,127,000
...

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