5. The firm must purchase manufacturing equipment costing $8 million. The equipment fell into the five-year MACRS depreciation category. Depreciation percentages for the first three years respectively were: 20%, 32%, and 19%. The cash outlay would be at Time 0, and depreciation would start in 2013. Analysts estimated the equipment could be sold for book value at the end of the projects life.

This is what I have done so far. The arrow is what you should be focusing on for equipment outlay/salvage. Everything else is done:

This is how I got 2.32, but I believe I misread the step. Our professor provides us with this:

If 2.32 is wrong, how do I go about solving for the Salvage Value? I don't see the market posted, unless $8 million is still the market value.

0 2012 1 2013 2 2014 3 2015 Year HIKING BOOT ($ mlns) Hiking Market Market Share Revenue (Market share x market size) Lost sales (Cannibalization) Net Revenue Variable Cost (38% Revenue) SG&A (Yr 1 12%, Yr 2 10%, Yr 8% Revenue) Endorsement Endorsement Bonus Other advertising Depreciation - factory Depreciation - equipment Technology purchase Interest Costs* Operating Profit (EBIT) Tax Impact (40%) Operating Profit After Tax Plus Depreciation - factory Plus Depreciation - equipment Net Change in Working Capital $ New Factory (Outlay/Salvage) $ New Equipment (Outlay / Salvage) $ $ 350 $ 402.5 $ 462.9 15% 18% 20% $ 52.50 $ 72.45 $ 92.58 $ - $ - $ $ 52.50 $ 72.45 $ 92.58 $ (19.95) $ (27.53) $ (35.18) $ (6.30) $ (7.25) $ (7.41) $ - $ - $ . $ - $ - $ . $ (3) $ (2) $ (2) $ - $ - $ . $ (1.60) $ (2.56) $ (1.52) $ (50) $ - $ . $ (0.6) $ (0.6) $ (0.6) $ (28.95) $ 32.51 $ 45.87 $ (11.58) $ 13.01 $ 18.35 $ (17.37) $ 19.51 $ 27.52 $ - $ - $ - $ 1.60 $ 2.56 $ 1.52 (15) $ - $ - $ 15 - $ - $ - $ .. (8) $ 2.32 2 2015 Year PERSISTENCE Depreciation - Schedule 1 MACRS Depreciation - Equipment Depreciation - Equipment Book Value - Equipment $ 8.00 $ 20% 1.60 $ 6.40 $ 32% 2.56 3.84 $ $ 19% 1.52 2.32 $ 2015 Salvage Value PP&E - Schedule 2 Equipment Market Book Gain/(Loss) Tax Impact Salvage Cash Flow Impact - Factory 40% 0 2012 1 2013 2 2014 3 2015 Year HIKING BOOT ($ mlns) Hiking Market Market Share Revenue (Market share x market size) Lost sales (Cannibalization) Net Revenue Variable Cost (38% Revenue) SG&A (Yr 1 12%, Yr 2 10%, Yr 8% Revenue) Endorsement Endorsement Bonus Other advertising Depreciation - factory Depreciation - equipment Technology purchase Interest Costs* Operating Profit (EBIT) Tax Impact (40%) Operating Profit After Tax Plus Depreciation - factory Plus Depreciation - equipment Net Change in Working Capital $ New Factory (Outlay/Salvage) $ New Equipment (Outlay / Salvage) $ $ 350 $ 402.5 $ 462.9 15% 18% 20% $ 52.50 $ 72.45 $ 92.58 $ - $ - $ $ 52.50 $ 72.45 $ 92.58 $ (19.95) $ (27.53) $ (35.18) $ (6.30) $ (7.25) $ (7.41) $ - $ - $ . $ - $ - $ . $ (3) $ (2) $ (2) $ - $ - $ . $ (1.60) $ (2.56) $ (1.52) $ (50) $ - $ . $ (0.6) $ (0.6) $ (0.6) $ (28.95) $ 32.51 $ 45.87 $ (11.58) $ 13.01 $ 18.35 $ (17.37) $ 19.51 $ 27.52 $ - $ - $ - $ 1.60 $ 2.56 $ 1.52 (15) $ - $ - $ 15 - $ - $ - $ .. (8) $ 2.32 2 2015 Year PERSISTENCE Depreciation - Schedule 1 MACRS Depreciation - Equipment Depreciation - Equipment Book Value - Equipment $ 8.00 $ 20% 1.60 $ 6.40 $ 32% 2.56 3.84 $ $ 19% 1.52 2.32 $ 2015 Salvage Value PP&E - Schedule 2 Equipment Market Book Gain/(Loss) Tax Impact Salvage Cash Flow Impact - Factory 40%