I need help figuring out question D. It is highlighted. Attached is what I have
Extracted text: Machine Cost = $145,000 Modifications = $21,000 Annual Labor Savings = $74,350 Electric Power Cost = $2400 each year Initial Investment = Cost of machine + modification cost + increase in net working capital = $171,150 145,000+21,000+5,150 $171,150 Operating Cash Flow Year 1 2 3 Saving in labor cost 74350 74350 74350 Additional power cost -2400 -2400 -2400 MACRS depreciation rate 33.33% 44.45% 14.81% Less: Depreciation 55327.8 73787 24584.6 ЕBIT 16622.2 -1837 47365.4 Less: Tax at 35% 5817.77 -642.95 16577.89 EAT 10804.43 -1194.05 30787.51 Add: Depreciation 55327.8 73787 24584.6 Operating Cash Flow S66,132.23 $72,592.95 $5,372.11 Terminal Cash Flow Year 1 2 3 Book Value of machine 110672.2 36885.2 12300.6 Salvage value of machine Tax on gain 65000 -18444.79 Salvage value net of tax 46555.21 Recovery of NWC 5150 Terminal cash flow 51705.21 NPV IRR
Extracted text: FIN 6020 Capital Budgeting v19s HT Tool Company HT Tool Co is considering the purchase of a new CNC milling machine to enhance the quality of its custom fabrication services. This project is not expected to change sales, but should save the firm in labor costs. The annual labor savings is expected to be $74,350 (before tax) but the machine will use more electrical power, which is expect to cost $2,400 each year. The machine costs $145,000. It will require $21,000 in modifications to support the needs of HT Tool. An increase in inventory (net working capital) of $5,150 will be necessary. The machine will be depreciated using MACRS with a 3-year class life (half-year convention). • The firm's tax rate is 35%. • The plan is to sell the machine after 3 years and the expected selling price then is estimated at $65,000. The hurdle rate for this project is 10.5% Begin with a blank unused worksheet and show your setup: a. What is the initial investment of this project? (Year O net cash flow). b. What are the net operating cash flows for years 1, 2, and 3? c. What is the terminal (NOT operating) cash flow in year 3? d. What are the NPV and IRR for this project? e. Should be accepted?