18. Depreciation and Project Value. Bottoms Up Diaper Service is considering the purchase of a new industrial

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18. Depreciation and Project Value. Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $6,000 and sell its old washer for $2,000. The new washer will last for 6 years and save $1,500 a year in expenses. The opportunity cost of capital is 16%, and the firm's tax rate is 40%. (LO3)

a. If the firm uses straight-line depreciation to an assumed salvage value of zero over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will in fact have zero salvage value after 6 years, and the old washer is fully depreciated.

b. What is project NPV?

c. What is NPV if the firm uses MACRS depreciation with a 5-year tax life?

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Fundamentals Of Corporate Finance

ISBN: 9780073382302

6th Edition

Authors: Richard A Brealey, Stewart C Myers, Alan J Marcus

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