Please answer just part D QuestionProb1Prob2Prob3Prob4Prob512-9 NEW PROJECT ANALYSIS You must evaluate a proposal to buy a new milling machine. Thebase price is $135,000 and shipping and installation costs would add another $8,000. Themachine 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 capital (increasedinventory less increased accounts payable). There would be no effect on revenues, but pretaxlabor costs would decline by $52,000 per year. The marginal tax rate is 35%, and the WACCis 8%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine.a. How should the $4,500 spent 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. Step 1MACRS Depreciation is a method of reduction in book value of tangible fixed assets at an accelerated pace. Most of the value of property,plant and equipment is depreciated in initial years. Only a certain small amount of depreciation remains for later years.Step 2 Part aThe amount of $4,500 spent last year on investigation of feasibility of machine should be treated as a period cost and be charged in thestatement of profit and loss of previous year itself. It can't be denominated as a product cost because such cost is not directly or indirectlyrelated with the production process if such machinery purchasing decision is not made.Step 3 Part bThe initial investment outlay for the purchase of machinery at time = 0 shall be the purchase price of machinery and the additionalexpenditure incurred on it to make it come to a working platform.Initial Investment Outlay=Purchase Price of Machine + Shipping and installation cos t=$135, 000 + $8,000=$143, 000Step 4 Part cParticularsYear 1 ($)Year 2 ($)Year 3 ($)Cost Savings on Labor Costs52,00052,00052,000Less: increase in operating cash(5,000)(5,000)(5,000)flowsLess: Depreciation(16,005)(21,825)(7,275)Net Profit before taxes30,99525,17539,725Less: Taxes @ 35%(10,848.25)(8,811.25)(13,903.75)Cash Flows20,146.7516,363.7525,821.25

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Labor costs are the cost which are incurred to get the raw materials produced. The labor cost is a…