5. The reason depreciation must be considered in a NPV analysis is: a. Depreciation is a cash flow item c. Depreciation should not be considered b. Depreciation has no tax effects d. Depreciation can save income taxes 6. A company is considering investing in one of two machines: one new and one it already has been using. If the old machine, acquired three years ago, has four years of remaining life, what is the present value of the tax savings generated by straight-line depreciation over its remaining life. The original cost of the machine was $224,000. The cost of capital is 12% and the tax rate=40%. Round to nearest whole dollar. a. $12,800 c. $32,000 b. $38,874 d. $68,029 1 7. A special machine can save $11,200 per year in cash operating expenses for the next 10 years. The cost is $44,000. No salvage value is expected. Assume the tax rate averages 2/7 of taxable income, straight-line depreciation is used, and the cost of capital = 10%. The CFAT is (round to the nearest dollar): a. $11,200 c. 6,800 b. $9,258 d. $4,000