Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of ABC Company:

This project will require an investment of $20,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the projects four-year life. ABC pays a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 9.5%.

a) Using a table, calculate the projects free cash flows at t=0 and for years 1 through 4

Year 1 Year 2 Year 3 Year 4 Unit sales 10,000 15,000 15,000 16,000 Sales price $23 $24 $24.50 $25 Variable cost per unit $10 $11 $12 $13 Fixed operating costs $40,000 $42,000 $45,000 $46,000

b) What is the projects net present value (NPV) under the new tax law?

*PLEASE SHOW ALL THE CALCULATIONS