1

1. Use the following information to answer the questions in this quiz.
2. Please show your work by submitting a Word, Excel, or JPEG file in the "Project 2 Drop Box".
5. INFORMATION OLD MACHINE:
12. Original Purchase Price
14. $550,000.00
16. Original Life
18. 10 YEARS
20. Remaining Life
22. 5 YEARS
24. Straight line depreciation in use
27. Salvage Value
29. $50,000.00
31. Current Fair Market Value
33. $260,000.00
43. INFORMATION NEW MACHINE A:
50. Purchase Price
52. $895,000.00
54. Estimated Life
56. 5 YEARS
58. Use Straight Line Depreciation Method
61. Estimated Salvage Value
63. $10,000.00
73. Estimated Net Operating Cash Flow Increase/Decrease (Prior to Depreciation and Taxes)
77. End of Year 1
79. $100,000.00
80. End of Year 2
82. $150,000.00
83. End of Year 3
85. $250,000.00
86. End of Year 4
88. $200,000.00
89. End of Year 5
91. $200,000.00
95. ASSUMPTIONS:
98. Tax Rate
100. 40%
101. WACC Rate
103. 7%
105. If you keep the old machine, the NPV is:
106. A.118,567
107. B.117,653
108. C.30,489
109. D.300,410

40 points

QUESTION 2

1. If you sell the old machine and buy new machine A, the NPV will be:
2. 10,619
3. -4,995
4. -5,859
5. 2,907

40 points

QUESTION 3

1. What decision do you suggest?
2. A.Keep the old machine and do not buy the new machine.B.Sell the old machine and buy the new machine.

10 points

QUESTION 4

1. If we go ahead and do the project, which cash flow should be most certain to happen in the amount that we projected?
2. A.The cost of the new machine.
3. B.The projected cash flow saving in year 4.
4. C.The tax benefit from depreciation
5. D.The salvage value on the new machine.