A firm has just purchased equipment for $200 million that will be depreciated using

the 5-year modified accelerated cost recovery system (MACRS). What will the

depreciation amount be in the 3rd year after the firm purchased the equipment? The

5-year MACRS schedule is given below. Round all intermediate calculations to 6

decimal points. Your final answer should be within $0.02 million of the correct

answer choice.

Year 1: 20%

Year 2: 32%

Year 3: 19.2%

Year 4: 11.52%

Year 5: 11.52%

Year 6: 5.76%

$104 million

$11.52 million

$40 million

$38.40 million

A firm is considering a project that is expected to generate a cash flow of $15 million

in 1 year. Starting in year 2, the annual cash flows generated by the firm are

expected to grow at a rate of 3% per year, each year, forever. The initial cost of the

project is $225 million. The discount rate applicable to this project is 9.5% per year

compounded annually. What is the profitability index for this project and should the

project be accepted? Round all intermediate calculations to 6 decimal points. Your

final answer should be within 0.02 of the correct answer choice

0.70

0.58

1.03

1.31