The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,090,000, and it would cost another $17,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $589,000. 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 $17,000. The sprayer would not change revenues, but it is expected to save the firm $326,000 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. What is the Year-0 net cash flow? $ What are the net operating cash flows in Years 1, 2, and 3? Year 1: $ Year 2: $ Year 3: $ What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)? $
New-Project Analysis
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,090,000, and it would cost another $17,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $589,000. 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 $17,000. The sprayer would not change revenues, but it is expected to save the firm $326,000 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.)
-
What is the Year-0 net cash flow?
$
-
What are the net operating cash flows in Years 1, 2, and 3?
Year 1: $ Year 2: $ Year 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 11%, what is the
NPV of the project?
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New project analysis is a process of evaluating a new project option based on various aspects such as design, feasibility, execution, budget, maintenance, etc. of the project. The purpose of new project analysis is to determine the feasibility of the project, make improvements, detect errors and risks, and monitor the efficiency of the project.
Given:
Cash flows incurred in Year 0 are as follows-
Sprayer’s base price: -$1,090,000 (As it is a cash outflow, amount will be negative)
Installation cost: -$17,500
Increase in net working capital is also considered as a cash outflow.
Increase in net working capital: -$17,000
Therefore, the Year-0 net cash flow will be calculated as follows-
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