You must evaluate a proposal to buy a new milling machine. the base price is $135,000, and shipping and installation costs would add another $8,000. the machine falls into the macrs 3-year class, and it would be sold after 3 years for $94,500. the applicable depreciation rates are 33%, 45%, 15%, and 7% as discussed in appendix 12a. the machine would require a $5,000 increase in net operating working revenues, but pretax labor costs would decline by $52,000 per year. the marginal tax rate is 35% and the wacc is 8%. also, the firm spent $4,500 last year investigating the feasibility of using the machine.

a. how should the $4,500 spend last year be handled?

b. what is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the year 0 project cash flow?

c. what are the project’s annual cash flows during years 1, 2, and 3?

d. should the machine be purchased? explain your answer.

For example, the upper right cell shows that if expresso advertises and beantown doesn't advertise, expresso will make a profit of $15 million, and beantown will make a profit of $2 million. assume this is a simultaneous game and that expresso and beantown are both profit-maximizing firms. if expresso decides to advertise, it will earn a profit of $ million if beantown advertises and a profit of $ million if beantown does not advertise. if expresso decides not to advertise, it will earn a profit of $ million if beantown advertises and a profit of $ million if beantown does not advertise. if beantown advertises, expresso makes a higher profit if it chooses . if beantown doesn't advertise, expresso makes a higher profit if it chooses . suppose that both firms start off not advertising. if the firms act independently, what strategies will they end up choosing? expresso will choose to advertise and beantown will choose not to advertise. expresso will choose not to advertise and beantown will choose to advertise. both firms will choose to advertise. both firms will choose not to advertise.