Hi Fin,

Please help me with these practice problems.

Thank you!

Show your work. (The following information applies to the next 5 questions.) You have been asked by the president of Ellis Construction Company, headquartered in Toledo, to evaluate the proposed acquisition of a new earthmover. The mover's basic price is $50,000, and it will cost another $10,000 to modify it for special use by Ellis Construction. Assume that the mover falls into the MACRS 3-year class (33%, 45%, 15%, 7%). It will be sold after 3 years for $20,000, and it will require an increase in working capital (spare parts inventory) of $2,000. The earthmover purchase will have no effect on revenues, but it is expected to save Ellis $20,000 per year in before-tax operating costs, mainly labor. Ellis's marginal federal-plus-state tax rate is 40%. The cost of capital (discount rate) is 9%. 1. What is the initial (t=0) cash outflows? 2. What is the operating cash inflows at t=1? 3. What is the operating cash inflows at t=2? 4. What is the total cash flows (operating cash flows plus the terminal cash flows) at t=3? 5. Compute the NPV of the project. What is your conclusion? (The following information applies to the next 5 questions.) Franks Company is looking at a new sausage system with an installed cost of $515,000. This cost will be depreciated straight line to zero over the project's five year life, at the end of which the sausage system can be scrapped for $77,000. The sausage system will save the firm $195,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $36,000. The relevant tax rate is 35 percent and the discount rate (or cost of capital) is 9 percent. 6. What is the initial (t=0) cash outflows? 7. What is the annual depreciation? 8. What is the operating cash inflows at t=1? 9. What is the total cash flows (operating cash flows plus terminal cash flows) at t=5? 10. Compute the IRR of the project. Should the company buy the new system