Question

# The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's...

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is \$880,000, and it would cost another \$18,500 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 \$625,000. 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 \$389,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 40%.

1. What is the Year 0 net cash flow?
\$

2. 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 \$

3. 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.
\$

4. If the project's cost of capital is 12 %, 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

a. Year 0 Net Cash Flow = -\$910500

b. Year 1 Net Operating Cash Flow = \$353188

Year 2 Net Operating Cash Flow = \$393153

Year 3 Net Operating Cash Flow = \$286627

c. Additional Year 3 Cash Flow = \$413632

d. NPV = \$216696

e. The Machine is recommended as it results in Positive NPV