Robotic paint sprayer to production line

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Reference no: EM132029811

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $930,000, and it would cost another $20,000 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 $590,000. The machine would require an increase in net working capital (inventory) of $16,000. The sprayer would not change revenues, but it is expected to save the firm $489,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 40%.

a. What is the Year 0 net cash flow?

b. What are the net operating cash flows in Years 1, 2, and 3?

c. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)?

d. If the project's cost of capital is 14 %, what is the NPV of the project?

Reference no: EM132029811

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