1. Use the following information for the next THREE questions.

Suppose we are considering automating some part of an existing production process. The necessary equipment costs $70,000 to buy and install. The automation will save $22,000 per year (before taxes) by reducing labor and material costs. For simplicity, assume that the equipment has a five-year life and is depreciated to zero on a straight-line basis over that period. It will actually be worth $25,000 in five years. Should we automate? The tax rate is 21%.

Calculate the CFFA in Yr 1.

Hint: Depreciation per yr = 70,000/5 = 14,000

EBIT = 22,000 14,000 = 8,000

Taxes = 8000 x .21 = 1680

OCF = EBIT + Depr Taxes Group of answer choices

A) . 24,190

B) 25,950

C) 22,630

D) 23,640

E) 20,320

F) 21,760

2. Calculate the CFFA in Yr 5.

Group of answer choices

A) 37,204

B) 41,480

C )40,070

D) 39,120

E) 42,470

F) 38,260

3. The discount rate is 14%.

The NPV of this project is $__________________.

CF0 = -7000

CF1 = 20320

CF2 = 20320

CF3 = 20320

CF4 = 20320

Group of answer choices

A) 16821

B) 5937

C) 14456

D) 12190

E) 7935

F) 10018