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The Johnson Company is evaluating the proposed acquisition of a new machine. The machine's basic price...

The Johnson Company is evaluating the proposed acquisition of a new machine. The machine's basic price is $70,000 and it would cost another $20,000 to modify it for special use by the firm. The machine falls into the MACRS 3-year class (33% depreciation in year 1, 45% in year 2, 15% in year 3 and 7% in year 4), and it would be sold after 3 years for $80,000. The machine will require an increase in net working capital of $20,000. The machine will have no effect on revenues, but it is expected to save the firm $50,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 40%.

a) What is the net outlay for the equipment?

b) What are the net cash inflows in years 1, 2 and 3?

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