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.
<h3>What is the net present value?</h3>
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:
<h3>Data and Calculations:</h3>
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)
<h3>Determination of Net Present Value (NPV):</h3>
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 brainly.com/question/18848923
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