1. Suppose you buy an asset for $1,000,000. If it costs $100,000 for shipping and installation, how much is your investment outlay?

2. Suppose you buy an asset for $100,000 that is depreciated for tax purposes over 20 years using straight-line depreciation. Break down

the tax effects upon sale of this asset after five years if the sales

price is: (a) $125,000 (b) $100,000 (c) $75,000 (d) $50,000

3. The Schwab Steel Company is considering two different wire sol-dering machines. Machine 1 has an initial cost of $100,000, costs $20,000 to set up and is expected to be sold for $20,000 after 10 years. Machine 2 has an initial cost of $80,000, costs $30,000 to set up and is expected to be sold for $10,000 after 10 years. Both machines would be depreciated over 10 years using straight-linedepreciation. Schwab has a tax rate of 35%.

(a)

What are the cash flows related to the acquisition of each machine?

(b)

What are the cash flows related to the disposition of each machine?