Question

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $970,000, and it would cost another $19,500 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 $617,000. The machine would require an increase in net working capital (inventory) of $15,000. The sprayer would not change revenues, but it is expected to save the firm $473,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 35%. 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

-1,004,500

Step-by-step explanation:

Cash used by an transaction is known as the cash outflow and cash provided by the transaction is known as cash inflow. Expenses and payments uses the cash and Revenue or receipts provide the cash.

All of the following cash flows are incurred in year 0

Base price = $970,000

Installation cost = $19,500

Increase in Working capital = $15,000

Total Cash Flow = $970,000 + $19,500 + $15,000 = $1,004,500

Cash has been used by each above transaction so,There is a Cash out flow of $1,004,500.

Answer 2

Year -0 net cash flow = -$ 1,004,500 (Cash outflow)

Step-by-step explanation:

Sprayer's base price = -$970,000

Installation cost = -$19,500 ( cash outflow)

In investment analysis, increases in working capital are viewed as cash outflows

Increase in net working capital = -$15,000 (cash outflow)

Year-0 net cash flow = Base Price + Installation cost + Increase in net working capital

Year-0 net cash flow = (-970,000) + (-19,500) + (-15,000)

Year-0 net cash flow = -970,000 - 19,500 - 15,000

Year -0 net cash flow = -$ 1,004,500 (Cash outflow)