New project analysis You must evaluate a proposal to buy a hot milling piece of equipment. The end price is $108,000, an

New project analysis You must evaluate a proposal to buy a new milling machine. The end price is $108,000, and shipping and installation costs would add another $12,500.
The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The applicable depreciation rates are 33, 45, 15, and 7 percent. The device would require a $5,500 increase in working capital (increased inventory smaller number increased accounts payable). There would be no effect on revenues,
but pre-tax labor costs would decline by $44,000 per year. The marginal tax rate is 35 percent, and the WACC is 12 percent. Also, the firm spent $5,000 last year investigating the capability of using the machine.

a. How should the $5,000 spent last year be handle?

b. What is the net cost of the machine for wherewithal budgeting purposes, that is, the Year 0 project cash flow?

c. What are the web operating cash flows during Years 1, 2, and 3?

d. What is the terminal year cash flow?

e. Should the electrical device be purchased?

Explain your answer.
Answers:
TLDNR

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