Capital Budgeting Example problem.docx A new washer costs $11,000. The old one can be sold for $5,000. The now washer will last for 8 years and save $2,850 per year in expenses. The discount rate is 14% and the tax rate is 30%. The washer will be depreciated on a straight line basis to zero (a) What is the after ar gain on the sale of the old washer (assume it is fully depreciated? ANS $3.500 (b) What is the amount of initial investment required (CF.)? ANS -37,500 (c) What is the amount of operating cush Now (OCF) per year? ANS 52.407 (d) What is the NPV of the project? ANS $3,668 Repeat the problem 6 using MACRS 7 year depreciation schedule instead of straight line. Use the table below as a guide 7 8 6 4 5 2 3 $2,850 $2,850 $2,850 $2,850 $2,850 $2,850 $2,850 $2,850 Savings Depr EBT Tax NI OCF MACRS 7 year Year Amount 1 14.30% 2 24.50% 3 17.50% 4 12.50% 5 8.90% 6 8.90% 7 8.90% 8 4.50% ANS: 33.880