1. XYZ Co is considering a new project. They have estimated that the project will cost $1000 initially. Cash flows from increased sales will be $500 the first wear. These cash flows will increase by 6 percent per year. The project will finish five years from now. Assume the initial cost is paid now and all revenues are received at the end of each year. All cash flows have already considered the inflation rate. If the company's investors require a 10 percent real return for such an investment and the inflation rate is expected to be 5% per year. What is the NPV of the project?

a. $1113.34

b. $836.54

c. $963.5 

d. $1209.3

2. ABC Co can currently produce 1000 units of toys every year. ABC Co. is considering purchasing a machine to increase its production and sales. The machine has a price of $200 and an expected 2-year lite. It can be depreciated using the linear depreciation method to its anticipated salvage value of $0 (i.e. the terminal book value will be $0). At the end of the 2nd year, the machine will be worth nothing.

After purchasing the machine, the company can produce and sell 1500 units annually for two years. The margin before deprecation is $0.2/unit.

ABC has no net working capital. The corporate tax rate is 50%

The discount rate of the project is 10%. What is the NPV of the project?

a. -$147.11 

b. $147.11

c. $26.45

d. -$26.45