1. a. You are performing a discounted cash flow analysis on a project that requires a special piece of machinery that is owned by your firm but that is no longer being used in any other capacity. If your firm sold the machinery today, it would probably sell for about $10,000. The machinery was purchased for $50,000 two years earlier. One year ago, your firm spent an additional $20,000 to modify the machine. What cash flow should you include for the cost of the machine in your DCF analysis? (Ignore tax consequences for now.)

b. Now reconsider the question including tax consequences. Assume that the current book value of the machinery is $5,000, and that the tax rate is 50%. What cash flow should you include for the cost of the machine in your DCF analysis?

c. Answer (b) again assuming the book value is $25,000.

d. Answer (b) one more time assuming the book value is $10,000