Reference no: EM133075814
Question - 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 $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 $647,000. The machine would require an increase in net working capital (inventory) of $18,500. The sprayer would not change revenues, but it is expected to save the firm $431,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%.
Required -
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 10%, what is the NPV of the project?
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