Question

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,080,000, and it would cost another $19,000 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 $626,000. The machine would require an increase in net working capital (inventory) of $18,500. The sprayer would not change revenues, but it is expected to save the firm $436,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%. Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.

What is the Year-0 net cash flow?

Answer 1

$1,117,500

Step-by-step explanation:

The net cash flow required immediately( year zero) to get the project underway comprises the sprayer's base price, its installation cost as well as the net working capital of $18,500.

The above-highlighted items are the ones cash outflows required in year zero while other ones are cash inflows or outflows required subsequently.

The net cash flow in year zero is computed thus:

Year-0 net cash flow=$1,080,000+$19,000+ $18,500

Year-0 net cash flow=$1,117,500