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?
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