4-a You must evaluate the purchase of a proposed piece of equipment. The cost of the equipment is $50,000. The installation and transportation cost of bringing the equipment to its location is $6,000. The equipment falls into the MACRS 3-year class. The project is expected to increase revenues by $80,000 each year and increase operating costs (excluding depreciation) by $30,000 each year. This project leads to an increase in net operating working capital by $10,000. You can salvage the equipment for $10,000 at the end of the project. What is the project's cash flow in Years 1, 2, 3, 4? (use MACRS of 33%, 45%, 15%, 7%). Use the NPV and IRR criteria to evaluate this project. Is this project profitable? Use marginal tax rate of 21% and WACC of 10%. (You must show your full work to earn any credit for this question) (6 points)

(4b) Given the information below (in millions):

Value of operation $2,000

Short-term investments $30

Debt $50

Value of preferred stock $ 5

Number of shares 100

Demonstrate that the stock price will drop by exactly the amount of dividend per share in the model if this firm pays dividend. Assume that the firm uses the its short-term investment account to fund its dividend payment (3 Points)

(4c) Use the information in 4(b) above to demonstrate that share per stock will remain unchanged after a stock repurchase. Assume that the firm uses the its short-term investment account to fund the stock buyback. (3 Points)