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Macrs rates of campbell company

**Problem1.** The Campbell Company is considering adding the robotic paint sprayer to its production line. The sprayer%u2019s base price is $1,080,000, and it would cost another $22,500 to inaugurate it. The machine falls in the MACRS 3-year class, and it would be sold out after 3 years for $605,000. The MACRS rates for the first 3 years are 0.3333, 0.4445, and 0.1481. The machine would need an increase in net working capital (inventory) of $15,500. The sprayer wouldn’t change revenues, but it is anticipated to save the firm $380,000 per year in before-tax operating costs, mainly labour. Campbell%u2019s marginal tax rate is 35%.

a. What is Year 0 net cash flow?

b. What are net operating cash flows in Years 1, 2, and 3?

c. What is additional Year-3 cash flow (i.e., the after-tax salvage and the return of working capital)?

d. Based on your IRR analysis, if the project%u2019s cost of capital is 12%, should the machine be bought?

## Answer

**Course:** Financial Accounting

**Ref. No:-** TGS03654