2. a.

An asset used in a 4-year project falls in the 5-year MACRS class (refer to MACRS table on page 277), for tax purposes. The asset has an acquisition cost of $18,885,496 and will be sold for $6,106,179 at the end of the project. If the tax rate is 0.27, what is the aftertax salvage value of the asset ?

b.

Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 3 years ago for $8,191,829 in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $3,619,677. An engineer was hired to study the land at a cost of $896,149, and her conclusion was that the land can support the new manufacturing facility. The company wants to build its new manufacturing plant on this land; the plant will cost $5,118,135 million to build, and the site requires $1,369,657 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?