Question

I need an answer for C

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.) Answer is complete and correct Annual operating cash flow in year 0 Annual operating cash flow in years 1 to6 $ (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 .) Answer is complete and correct NPV (67.00) 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.) Answer is complete but not entirely correct NPV $14.84

Answer 1

Part C : NPV = $28.71

year	inflow	MACRSDep. rate	Dep. Amount$	IBT	Tax	IAT	Cashflow	Discount rate 20%	PV
0	(-3600)+(900*0.6)= -3060						-3060	1	-3060
1	1100	20	720	380	152	228	948	0.833	789.68
2	1100	32	1152	-52	-20.8	-31.2	1120.8	0.694	777.84
3	1100	19.2	691.2	408.8	163.52	245.28	936.48	0.579	542.22
4	1100	11.52	414.72	685.28	274.112	411.168	825.888	0.482	398.08
5	1100	11.52	414.72	685.28	274.112	411.168	825.888	0.402	332.01
6	1100	5.76	207.36	892.64	357.056	535.584	742.944	0.335	248.89
NPV									28.71