Question

1- You are evaluating a capital project for equipment with a total installed cost of $750,000. The equipment has an estimated life of 30 years, with an expected salvage value at the end of the project of $50,000. The project will be depreciated via simplified straight-line depreciation method. In addition, a working capital investment of $5,000 is required. The project replaces an old piece of equipment which is currently in service and is fully depreciated, but has an expected after-tax salvage value of $12,000. After replacing the old equipment, cash savings from decreased operating expenses are expected to amount of $200,000 per year. The firm;s marginal tax rate is 40 percent and the project cost of capital is 10%. What is the net present value of this project? Round to the nearest penny. Do not include a dollar sign in your answer.

2-You are a part of a finance team in a firm, and you were asked by your boss to estimate the annual cash flows of a project. You estimated that the annual sales and costs of this project is $150,000 and $25,000 respectively. In order to start the project, the firm needs to invest in $300,000 in new equipment including shipping and installation, and $30,000 in working capital. The life of this asset is 3 years, and the project will be terminated after 3 years of operations. The equipment will depreciate via simplified straight-line method, and the estimated market value of the machine in 3 years is $20,000. The firm has a marginal tax rate of 22%. What is the total annual cash flow of the first year of this project? Round to the nearest penny. Do not include a dollar sign in your answer.

3-A firm has a machine it can sell for $40,000. The book value of the machine is currently $20,000. If the firm sells the machine, what are the tax implications from the sale? Assume that the tax rate is 40%.Round to the nearest penny. If tax liabilities, type a negative sign in front. Do not include a dollar sign in your answer. (i.e. If your answer is tax liabilites of $8,765,43, type -8765.43; if tax shield of $8,765.43, type 8765.43).

Thank you for your help!

Answer 1

As per Chegg policy, only 1 question per submission can be solved. Here comes the solution for the first question

Initial Investment
Cost	750,000
After tax salvage value of old equipment	(12,000)
cash flow for assets	738,000
Working capital	5,000
Total initial Investment	743,000
Cost	750,000
Less expected salvage value	50,000
Depreciable value	700,000
Life in years	30
Annual depreciation	23,333
Tax saving @ 40%	9,333
Decreased operating expense	200,000
After tax saving in operating expense	120,000
Tax saving in dep	9,333
Total cash saving	129,333
Let's calculate the PV of inflows
Annual inflows	129,333
Sum of PV factor from year 1-30	9.426914467
PV of annual inflows	1,219,214.27
PV of working capital and salvage value recovered
WC recovered	5000
Salvage value	50000
Total recovery after 30 years	55000
PV factor	0.057308553
PV	3,151.97
Total PV of inflow	1,222,366.24
Total initial investment	(743,000)
NPV	479,366.24