A project has a 3-year economic life, and entails an initial investment of $30 million in plant and machinery, which are expected to be worthless after year 3. The project's opportunity cost of capital is 5%, and the tax rate is 30%. (20 points)(a) Assume that the project uses a straight-line depreciation schedule and the initial investment will be fully depreciated from year 1 to year 3. Fill out the blanks in the worksheet below and compute the project's NPV. (There are more rows than you need.)

Year

0

1

2

3

Capital investment

30.0

0.0

0.0

0.0

Working capital

0.0

4.0

7.0

0.0

Sales

0.0

20.0

50.0

80.0

Cost of goods sold

0.0

10.0

20.0

30.0

Fixed costs

0.0

15.0

15.0

15.0

Annual cash flow

PV of annual cash flow

NPV

(b) What's the present value of tax savings from depreciation under the straight-line schedule?

(c) What's the present value of tax savings from depreciation under an accelerated depreciation schedule in which 60% of the initial investment will be depreciated in year 1, 30% in year 2, and 10% in year 3?

(d) What's the project's NPV under the accelerated depreciation schedule in part (c)? Hint: Make use of your answers to parts (b) and (c).