1. Gig Harbor, Inc. is considering the purchase of a 5-year MACRS equipment at $205,000. The company expects to sell the equipment after four years at a price of $55,000. What is the after-tax cash flow from this sale if the tax rate is 35 percent?

MACRS 5-year property

Year Rate

1 20.00%

2 32.00%

3 19.20%

4 11.52%

5 11.52%

6 5.76%

2. Spokane, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.8 million. The fixed asset falls into the 3-year MACRS class (0.3333, 0.4445, 0.1481, 0.0741) and will have a market value of $214,200 after 3 years. The project requires an initial investment in net working capital of $306,000. The project is estimated to generate $2,448,000 in annual sales, with costs of $979,200. The tax rate is 34 percent and the required return on the project is 8 percent. What is the initial capital outlay for the project?