2. (3 points) A new government policy mandates that your firm depreciate a machine over the next 4 years (straight line to zero). Previously you had to depreciate the machine over the next 6 years (straight line to zero). Your firm has positive unlevered free cash flows (FCFs) and positive profits in each year under both depreciation schedules (the old one and the new one). Your firm does not have any debt and will not take on any debt in the future. The policy change is expected to have no effect on any other aspect of the firms operations (only depreciation will change). In particular, your firm will use the machine for 6 years, independent of which depreciation schedule is used. After 6 years, the machine will become worthless (market value = 0). The appropriate discount rate for your firm is 8%. The tax rate is 30%. How will this policy change affect the value of your firm? a. There is not enough information. b. Firm value will stay the same. c. Firm value will go up. d. It will go down, since profits will decline for the next 4 years due to increased depreciation. Although profits in years 5 and 6 go up, they are discounted more and thus will have less impact on todays firm value. e. None of the above

please show working details, why you choose any options

2. ( 3 points) A new government policy mandates that your firm depreciate a machine over the next 4 years (straight line to zero). Previously you had to depreciate the machine over the next 6 years (straight line to zero). Your firm has positive unlevered free cash flows (FCFs) and positive profits in each year under both depreciation schedules (the old one and the new one). Your firm does not have any debt and will not take on any debt in the future. The policy change is expected to have no effect on any other aspect of the firm's operations (only depreciation will change). In particular, your firm will use the machine for 6 years, independent of which depreciation schedule is used. After 6 years, the machine will become worthless (market value =0 ). The appropriate discount rate for your firm is 8%. The tax rate is 30%. How will this policy change affect the value of your firm? a. There is not enough information. b. Firm value will stay the same. c. Firm value will go up. d. It will go down, since profits will decline for the next 4 years due to increased depreciation. Although profits in years 5 and 6 go up, they are discounted more and thus will have less impact on today's firm value. e. None of the above