A proposed power-saving equipment has a purchase price of $520,000 and installation cost of $60,000. The equipment will be used in a four-year project but is classified as five-year MACRS property for tax purposes. The equipment is expected to save $280,000 before taxes per year in energy costs, and it will have a salvage value of $60,000 at the end of the project. To decide on the feasibility of the investment, the managers have ordered a series of tests to determine whether the proposed equipment will realize the required costs savings or not for a total cost of $18,000. The required rate of return on the equipment is 14% and it is expected to increase working capital by $45,000 at the beginning of the project. The tax rate is 35 percent and the MACRS depreciation schedule is as follows:

Year	1	2	3	4	5	6
MACRS	20.00%	32.00%	19.20%	11.52%	11.52%	5.76%

The after-tax salvage value for this project is:

Question 30 options:

1)	$39,000.00

2)	$60,000.00

3)	$64,072.58

4)	$74,078.40

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Question 29 (3.33 points)

Lake Lanier Inc. has always paid out all of its earnings as dividends, and hence has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity. Its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would reduce the WACC?

Question 29 options:

1)	The market risk premium declines.

2)	The floatation costs associated with issuing new common stock increase.

3)	The companys beta increases.

4)	Expected inflation increases.

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Downtown City Tours has 10,000 semi-annual bonds that are currently quoted at $1,036. The bonds mature in 9 years and carry a 10 percent annual coupon. What is the company's after-tax cost of debt if the applicable tax rate is 34 percent?

Question 28 options:

1)	6.20 percent

2)	6.27 percent

3)	7.17 percent

4)	9.28 percent