A firm is considering the purchase of a new air conditioning unit at a cost of $50,000. The unit will be used for five years and then sold for an expected salvage value of $20,000. The AC unit is more energy-efficient and will save $2,000 in electricity costs. It is also anticipated to make the workers more productive and thus reduce overtime costs by $20,000 per year. The firm has a 35% tax rate and a cost of capital of 12%.

a. Calculate the depreciation schedule using a five-year life with straight-line depreciation down to the salvage value of $20,000.

b. Calculate the depreciation schedule using a five-year MACRS life.

c. Calculate the after tax salvage value of the AC unit for the straight line depreciation method.

d. Calculate the after tax salvage value of the AC unit for the MACRS depreciation method.

e. Find the NPV of the AC unit if straight line depreciation is used.

f. Find the NPV of the AC unit if MACRS depreciation is used.