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Sagot :
1. The Year-0 net cash flow is -$1,061,500.
2. The net operating cash flows in Years 1, 2, and 3 are as follows:
Year 1: $288,750 ($386,000 x 1 - 0.25)
Year 2: $288,750 ($386,000 x 1 - 0.25)
Year 3: $288,750 ($386,000 x 1 - 0.25)
3. The additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital) is $468,750 {($599,000 x 1 - 0.25) + $19,500}.
4. The NPV of the project is ($13,139).
5. The machine should not be purchased because it does not yield a positive NPV.
What is the net present value?
The net present value (NPV) shows the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
It is determined by calculating the present values of cash flows using their present value factors as below:
Data and Calculations:
Initial cash outlay = $1,061,500 ($1,020,000 + $22,000 + $19,500)
Salvage value = $599,000
Increase in net working capital = $19,500
Annual savings before tax = $386,000
Tax rate = 25%
Annuial savings after tax = $288,750 ($386,000 x 1 - 0.25)
Determination of Net Present Value (NPV):
Year Cashflows PV Factor Present Value
0 -$1,061,500 1 -$1,061,500
1 $288,750 0.901 $260,164
2 $288,750 0.812 $234,465
3 $288,750 0.731 $211,076
3 $468,750 0.731 $342,656
Net present value -$13,139
Thus, the project should not be undertaken by The Campbell Company due to the negative NPV that it yields.
Learn more about determining the NPV at https://brainly.com/question/18848923
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