1. Your company is considering the purchase of Robinstats Inc. Robinstats is not publicly traded, so you need to discount its free cash flows to come up with a purchase price. You have the following information about Robinstats. Remember that all cash flows come at the end of the year. Revenues are expected to be $6 million this year Variable costs are expected to be $3 million this year Fixed costs are expected to be $1.5 million this year Revenues are expected to grow at 10% per year for two years (years 2 and 3) before settling into a constant growth of 3% per year forever Variable costs are expected to grow at 3% per year forever Fixed costs are expected to remain at $1.5 million per year forever If you acquire Robinstats, you will inherit two years of depreciation write-offs of $500,000 per year (years 1 and 2). There is no risk associated with these write-offs, so discount the tax shield they create at the risk-free rate. The marginal corporate tax rate is 21% Your cost of capital is 12% The risk-free rate is 3% What is the value of Robinstats Inc.?

2) Sustef Corporation is considering replacing a machine. The replacement will cut operating expenses by $24,000 per year for each of the five years the new machine is expected to last. Although the old machine has a remaining useful life of five years, it only has two years of depreciation left on its schedule ($10,000 per year). If the new machine is purchased, the old machine would be immediately sold for an amount equal to its book value. The new machine will cost $72,000 which will be depreciated over its expected life (no salvage value). Sustef is subject to a 21% tax rate on ordinary income and has a cost of capital of 12 percent. Calculate the NPV of replacing the old machine with the new one.