Campbell Company

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The   Campbell Company is considering adding a robotic paint sprayer to its production   line. The sprayer’s base price is $1,000,000, and it would cost another   $16,000 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 $630,000. The machine would require an   increase in net working capital (inventory) of $9,000. The sprayer would not   change revenues, but it is expected to save the firm $419,000 per year in   before-tax operating costs, mainly labor. Campbell’s marginal tax rate is   30%.

a. What is the Year 0 net cash flow?
$ _____

b. What are the net operating cash flows in Years 1, 2, and 3? Do   not round intermediate calculations. Round your answers to the nearest   dollar.

Year 1

$ _____

Year 2

$ ______

Year 3

$ ______

c. What is the additional Year 3 cash flow (i.e, the after-tax   salvage and the return of working capital)? Do not round intermediate   calculations. Round your answer to the nearest dollar.
$ ______

d. If the project’s cost of capital is 14 %, what is the NPV of the   project? Do not round intermediate calculations. Round your answer to the   nearest dollar.
$ ______

  Should the machine be purchased?

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