2. SHELFISH 1: As the finance manager of Shelfish Incorporated, you are considering purchasing a new piece of equipment for which the company estimates: Equipment Cost $290,000 with useful life of 7 years; straight line depreciation to a salvage value of $10,000 with 2 year convention for depreciation Equipment purpose: to produce 10,000 shelves per year for 5 years and expects to sell all of them Equipment annual maintenance expenses of $10,000 per year Shelf sale price $25 each; Variable Costs per shelf: $15 Working Capital requirements (balance) for the project are as follows: Year 0 = $10,000 @ Year 1 = $15,000 3 Year 2 = $17,000 @ Year 3 = $15,000 Q3 Year 4 = $10,000 At the end of the five-year period, the project will end. The company will be able to sell the equipment for $50,000. The company has a 35% marginal tax rate and a required rate of return of 15%. What is the NPV of this project? Should you undertake it? 3. SHELFISH 2: Repeat SHELFISH 1, but change the following: Depreciate over 7 years using MACRS (the salvage value is not considered when using this method). Depreciation rates are as follows: o Year 1: 14.29% o Year 2: 24.49% o Year 3: 17.49% o Year 4: 12.49% o Year 5: 8.93% o Year 6: 8.92% o Year 7: 8.93% o Year 8: 4.46% 4. SHELFISH 3: Repeat SHELFISH 1, but change the following: Marginal Tax Rate of 21% 5. SHELFISH 4: Repeat SHELFISH 1, but change the following: Depreciate over 7 years using MACRS (the salvage value is not considered when using this method). Marginal Tax Rate of 21% 2. SHELFISH 1: As the finance manager of Shelfish Incorporated, you are considering purchasing a new piece of equipment for which the company estimates: Equipment Cost $290,000 with useful life of 7 years; straight line depreciation to a salvage value of $10,000 with 2 year convention for depreciation Equipment purpose: to produce 10,000 shelves per year for 5 years and expects to sell all of them Equipment annual maintenance expenses of $10,000 per year Shelf sale price $25 each; Variable Costs per shelf: $15 Working Capital requirements (balance) for the project are as follows: Year 0 = $10,000 @ Year 1 = $15,000 3 Year 2 = $17,000 @ Year 3 = $15,000 Q3 Year 4 = $10,000 At the end of the five-year period, the project will end. The company will be able to sell the equipment for $50,000. The company has a 35% marginal tax rate and a required rate of return of 15%. What is the NPV of this project? Should you undertake it? 3. SHELFISH 2: Repeat SHELFISH 1, but change the following: Depreciate over 7 years using MACRS (the salvage value is not considered when using this method). Depreciation rates are as follows: o Year 1: 14.29% o Year 2: 24.49% o Year 3: 17.49% o Year 4: 12.49% o Year 5: 8.93% o Year 6: 8.92% o Year 7: 8.93% o Year 8: 4.46% 4. SHELFISH 3: Repeat SHELFISH 1, but change the following: Marginal Tax Rate of 21% 5. SHELFISH 4: Repeat SHELFISH 1, but change the following: Depreciate over 7 years using MACRS (the salvage value is not considered when using this method). Marginal Tax Rate of 21%
