Question

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $900,000, and it would cost another $22,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $600,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $17,500. The sprayer would not change revenues, but it is expected to save the firm $399,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.

- What are the net operating cash flows in Years 1, 2, and 3?
- What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)?
- If the project's cost of capital is 12%, what is the NPV of the project?

Answer #1

The Campbell Company is considering adding a robotic paint
sprayer to its production line. The sprayer's base price is
$920,000, and it would cost another $22,000 to install it. The
machine falls into the MACRS 3-year class, and it would be sold
after 3 years for $633,000. 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 $13,500.
The sprayer would not change revenues,...

The Campbell Company is considering adding a robotic paint
sprayer to its production line. The sprayer's base price is
$990,000, and it would cost another $18,000 to install it. The
machine falls into the MACRS 3-year class, and it would be sold
after 3 years for $600,000. The MACRS rates for the first three
years are 0.3333, 0.4445, and 0.1481. The machine would require an
increase in net working capital (inventory) of $13,000. The sprayer
would not change revenues, but...

New-Project Analysis
The Campbell Company is considering adding a robotic paint
sprayer to its production line. The sprayer's base price is
$850,000, and it would cost another $17,000 to install it. The
machine falls into the MACRS 3-year class, and it would be sold
after 3 years for $474,000. The MACRS rates for the first three
years are 0.3333, 0.4445, and 0.1481. The machine would require an
increase in net working capital (inventory) of $12,000. The sprayer
would not change...

The Campbell Company is considering adding a robotic paint
sprayer to its production line. The sprayer's base price is
$1,030,000, and it would cost another $21,000 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 $582,000. The machine would require
an increase in net working capital (inventory) of $19,000. The
sprayer would not change revenues, but it is...

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...

The Campbell Company is considering adding a robotic paint
sprayer to its production line. The sprayer's base price is
$890,000, and it would cost another $22,000 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 $547,000. The machine would require
an increase in net working capital (inventory) of $17,000. The
sprayer would not change revenues, but it is...

The Campbell Company is considering adding a robotic paint
sprayer to its production line. The sprayer's base price is
$1,140,000, and it would cost another $22,500 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 $626,000. The machine would require
an increase in net working capital (inventory) of $11,500. The
sprayer would not change revenues, but it is...

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 $20,500 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 $663,000. The machine would require
an increase in net working capital (inventory) of $9,000. The
sprayer would not change revenues, but...

New-Project Analysis
The Campbell Company is considering adding a robotic paint
sprayer to its production line. The sprayer's base price is
$870,000, and it would cost another $24,000 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 $644,000. The machine would require
an increase in net working capital (inventory) of $16,500. The
sprayer would not change revenues, but...

New-Project Analysis
The Campbell Company is considering adding a robotic paint
sprayer to its production line. The sprayer's base price is
$1,050,000, and it would cost another $19,000 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 $564,000. The machine would require
an increase in net working capital (inventory) of $12,000. The
sprayer would not change revenues, but...

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