1. A firm considers an acquisition of equipment for the production line for new and advanced type of semi-conductors. Because this involves new cutting-edge technology, the firm hired and paid an outside specialist at the cost of S25,000, who advised on the best type of equipment. Investment in the new equipment is S920,000 and its life expectancy is 8 years. It is expected to generate operating earnings of $265,000 every year (revenues minus operating costs before depreciation and taxes), at the end of each year of its operation. This equipment can be depreciated (for tax purposes) over five years using straight line depreciation. It is assumed to have no salvage value for depreciation purposes. The firm pays a corporate tax rate of 40% and its appropriate cost of capital is 9%. Compute and present in a table the expected free cash flows for this project. Calculate project NPV (By hand or with your calculator) and advise the firm whether or not they should acquire this equipment. a. b. c. Assume now that this equipment can be sold for S40,000 at the end of the project. Calculate the cash flow generated from the sale and the increase in the projects' NPV. Assume the tax rate on Capital Gains is 25%. Hint: to solve a. use the following table (write values in thousands to avoid extra zeros). Period Operating Earnings Depreciation Costs Profit before tax Taxes Profit after tax Free Cash Flows