1. Millys Manufacturing recently spent $15 million to purchase some equipment used in the manufacture of disk drives. The firm expects that this equipment will have a useful life of five years, and its marginal corporate tax rate is 35%. Millys will sell the equipment for an anticipated $2 million at the end of 5 years. Millys cost of capital is 10%.

a. Using straight line depreciation down to salvage value of $2 million, calculate the NPV of the equipment purchase.

b. Using MACRS with a five-year life, calculate the NPV of the equipment purchase.

c. Which of the two depreciation methods would Millys prefer?

d. Now assume that the companys corporate tax rate increases to 50%, which of the two depreciation methods would Millys prefer?

2. The cash flows for a project are as follows:

Year	Cash Flows
0	-$7,560
1	$42,930
2	-$91,050
3	$85,500
4	-$30,000

a. Construct an NPV profile using interest rates of 20, 30, 40, 50, 60, 70, and 80%.

b. How many IRRs are there for interest rates between 20 and 80%?

c. Using the method shown in the lecture, compute the modified internal rate of returnfor the project using a required return of 10%. Given your result, should the project be accepted?