A new machine costing $1,000,000 is expected to save the Company B $240,000 per year for 5 years before depreciation and taxes. The machine will be depreciated on a straight-line basis for a 5-year period to an estimated salvage value of $0. The firm's marginal tax rate is 30 percent.
A. What are the annual net cash flows associated with the purchase of this machine?
B. Should the company proceed with the project?
C. Explain the role of sensitivity and scenarios analysis in investment appraisal. What are the differences between the approaches?