2 20) Jenkins Security has learned that a rival has offered to supply a parking garage with security for ten D-3 years for $40,000 up front and a further $25,000 per year. If Jenkins Security offers to provide security for eight years for an upfront cost of $18,589 and a separate yearly payment, by what maximum amount can this yearly payment be over $20,000, so that Jenkins' offer matches the equivalent annual annuity of their rival's offer? (Assume a cost of capital of 7%.) A) $7582 B) $6445 C) $6066 D) $6824 21) Vernon- Nelson Chemicals is planning to release a new brand of insecticide, Ber-Safe, that will kill many insect pests but not harm useful pollinators. Buying new equipment to manufacture the product will cost $25 million, and there will be an additional $2 million cost to reconfigure existing plant. The equipment is expected to have a lifetime of eight years and will be depreciated by the straight-line method over its lifetime. The firm expects that they should be able to sell 1,500,000 gallons per year at a price of $50 per gallon. It will take $40 per gallon to manufacture and support the product. It Vernon- Nelson's marginal tax rate is 40%, what are the incremental earnings after tax in year 3 of this project? A) $11.9 million B) $7.1 million C) $4.8 million D) $15.0 million 21 22) 22) Year 0 Year 1 Year 2 Year 3 MACRS Depreciation Rate 33.33% 44.45% 14.81% 7.41% A machine is purchased for $500,000 and is used through the end of Year 2. The machine will be depreciated using the 3-Year MACRS schedule. At the end of Year 2, the machine is sold for $75.000 What is the after-tax cash flow from the sale of the machine at the end of Year 2 if the firm's marginal tax rate is 40%? A) $14,955 B) $59,820 C) $37,050 D) $37,950 2: 23) CathFoods will release a new range of candies which contain antioxidants. New equipment manufacture the candy will cost $2 million, which will be depreciated by straight-line depreciation over four years. In addition, there will be $5 million spent on promoting the new candy line. It is expected that the range of candies will bring in revenues of S4 million per year for four years with production and support costs of $1.5 million per year. If CathFoods' marginal tax rate is 35%, what are the incremental free cash flows in the second year of this proiect? A) S1.800 million B) 50.700 million B) $0.700 million C) $1.400 million D) $2.000 million 24 Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. I will cost $7,000,000 to buy the machine and $10,000 to have it delivered and installed. Building a clean room in the plant for the machine will cost an additional $3 million. The machine is expected to raise gross profits by $4,500,000 per year, starting at the end of the first year, with associated costs of $1 million for each of those years. The machine is expected to have a working life of five years and will be depreciated over those five years. The marginal tax rate is 40%. What are the incremental free cash flows associated with the new machine in year 2? A) $1,398,000 C) $2,098,000 D) $1,402,000