2.a ABC Ltd is considering investing $2.5 million in a precision excavating machine which is expected to have a zero salvage value at the end of its six-year life. The company uses a discount rate of 10% to value all its investments and its corporate tax rate is 30%. If the machine is depreciated on a straight-line basis over its economic life, calculate the present value of the depreciation tax shield. Show all calculations.

b. DEF Ltd has a capital structure that consists of 70% debt and 30% equity by market value. The company's cost of debt is 7% and its corporate tax rate is 30%. The company has a beta of 2.0, the riskfree rate is 5% and the expected return on the market portfolio is 15%. Based on this information, calculate the company's after-tax weighted average cost of capital. Show all calculations.

c. A project is expected to cost $4 million today and generate a net after-tax cash flow of $600,000 at the end of year 1 and $500,000 at the end of year 2. The net cash flows from year 2 onwards are expected to grow at 6% per annum forever. If the project's discount rate is 12%, calculate the net present value of the project. Show all calculations.