A company generates the following forecast for a capital budgeting project:

	Year 0	Year 1	Year 2
Equipment Purchase	1210
Revenue		2090	2420
Variable Costs		1045	1210
Depreciation (straight-line)		605	605

Suppose the discount rate of the project is 15.5% and the corporate tax rate is 21%.

a. What is the cash flow of the project in Year 1?

b. What is the NPV of the project?

c. If the cost of purchasing the equipment is expensed entirely in Year 0 instead of depreciated over the next two years, the NPV of the project would be lower. T/F?

d. Suppose the company sales equipment at the end of Year 2 for $100, what is the cash flow impact of the sale in Year 2?

e. If the company decides to fund the initial $1210 investment by raising perpetual debt, how much value can this capital structure decision create for the company? (Hint: what is the present value of tax shield?)