1) Suppose that an asset with a cost basis of $200,000 and with a useful life of 4 years is depreciated using 150% Declining Balance method. The asset is expected to produce net cash flows of $70,000 per year during its useful life and its salvage value is negligible. If the income tax rate is 40%, what is the present worth of the asset at an after-tax MARR of 13%? (25 p.)

2) A manufacturing firm can purchase a workstation for $10,000. It is estimated that the useful life of the work- station is 3 years, and its market value in 3 years should be $1,000. Operating expenses are estimated to be $20 per eight-hour workday, and maintenance will be performed for $4,000 per year. The effective income tax rate is 40% and depreciation deduction is calculated by the Straight-Line method. As an alternative, sufficient machining time can be leased from a service company at an annual cost of $10,000. The workstation is planned to be utilized for 100 workdays in a year. Determine if leasing is a better alternative than the purchase by using an annual worth analysis. Assume that operating expenses are associated with ownership. The after-tax MARR is 10% per year. (30 p.)

3) A firm owns a machine that it is contemplating replacing. The old machine has annual operating and maintenance expenses of $40,000 per year and it can be kept for seven more years, at which time it will have a market value of $6,000. It is believed that $20,000 could be obtained for the old machine if it were sold now.

A new pressure vessel can be purchased for $160,000. The new machine will have a market value of $70,000 in seven years and will have annual operating and maintenance expenses of $10,000 per year. Using a before-tax MARR of 19% per year, determine whether the old machine should be replaced or not. (15 p.)