The total cost for the new capital totals $718,000 with installation costs of $5,000. Inventories will increase by 6,500, accounts recieveable will increase by 4,000 and accounts payable will increase by 3500. The new capital is expected to be used for 5 years. The new item would be depreicated under MACRS using a 5-year recovery period. At the end of 5 years the machine can be sold for 95,000. The current, 4 year old machine can be sold for 112,000 before taxes and is being depreciated as a 7 year asset under MACRS. At the end of 5 years it is expected that this machine can be sold for 10,000. The new machine is expected to generate $380,000 in profits before depreciation and taxes for each of the next 5 years.  The existing machine is expected to generate $190,000 in profits before depreciation and taxes for each of the next 5 years.  The firm is subject to a 40% tax rate on both ordinary income and capital gains.

a)  What is the net initial investment?

b)  Show the project's operating cash flow statement for each year of operations.  What is the expected non-operating terminal cash flow when the project is terminated at Year 5?

c) What is the projects NPV?