Reference no: EM132814188
Question - The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,080,000, 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 $593,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in networking capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $350,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%.
Required -
a. What are the net operating cash flows in Years 1, 2, and 3?
b. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital).
c. If the project's cost of capital is 10%, what is the NPV of the project?
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