Question

I answered part A, I need B and C please

Problem 9-23 Depreciation and Project Value (LO3) Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $3,600 and sell its old washer for $900. The new washer will last for 6 years and save $1,100 a year in expenses. The opportunity cost of capital is 20%, and the firm's tax rate is 40%. a. If the firm uses straight-line depreciation to an assumed salvage value of zero over a 6-year life, what is the annual operating cash flow of the project in years O to 6? The new washer will in fact have zero salvage value after 6 years, and the old washer is fully depreciated. (Negative amount should be indicated by a minus sign.) Annual operating cash flow in year 0 Annual operating cash flow in years 1 to 6 $ (3,060) 900 b. What is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) NPV c. What is NPV if the firm uses MACRS depreciation with a 5-year tax life? Use the MACRS depreciation schedule. (Do not round intermediate calculations. Round your answer to 2 decimal places.) NPV

Answer 1

Req a:
Cash flow for Year-0
Initial Investment in New Washer				-3600
Less: Net After tax salvage of old washer
Amount of sale of old			900
Less: tax on Gain			360
(900- 0)*40%
Net after tax salvage of old washer				540
Cash flows for Year-0				-3060
Annual Operating cashflows for Year 1-6
Savings in expenses				1100
Less: Annual depreciation (3600/6)				600
Income before tax				500
Less: tax @ 40%				200
After tax Income				300
Add: Depreciation				600
Annual Operating cashflows for Year 1-6				900
Req b:
			0	1	2	3	4	5	6
Cash outflows for Year-0			-3060
Annual cash inflows				900	900	900	900	900	900
PVF at 20%			1	0.833333	0.694444	0.578704	0.482253	0.401878	0.334898
Present value of cashflows			-3060	750	625	520.8333	434.0278	361.6898	301.4082
NPV			-67
NPV: ($ 67)
Req c:
Cash flows for Year1-6
				1	2	3	4	5	6
Savings in expenses				1100	1100	1100	1100	1100	1100
Less: Annual dep				720	1152	691.2	414.72	414.72	207.36
				(3600*20%)	(3600*32%)	(3600*19.20%)	(3600*11.52%)	(3600*11.52%)	(3600*5.76%)
Net income before tax				380	-52	408.8	685.28	685.28	892.64
Less: tax @ 40%				152	0	163.52	274.112	274.112	357.056
After tax Income				228	-52	245.28	411.168	411.168	535.584
Add: Depreciation				720	1152	691.2	414.72	414.72	207.36
Annual cash flows				948	1100	936.48	825.888	825.888	742.944
NPV:
			0	1	2	3	4	5	6
Cash outflows for Year-0			-3060
Annual cash inflows				948	1100	936.48	825.89	825.89	742.94
PVF at 20%			1	0.833333	0.694444	0.578704	0.482253	0.401878	0.334898
Present value of cashflows			-3060	790	763.8889	541.9444	398.288	331.9067	248.8091
NPV			14.84
NPV: $ 14.84