Kennesaw Corp. is analyzing the purchase of a cost saving equipment. The equipment is expected to reduce energy expenses by $370,000 before tax per year, and it is expected to have a salvage value of $95,000 after four-years. This equipment will be used for four-years and depreciated using the five-year MACRS using the rates in the below table. The equipment will cost $630,000 to purchase and will require an additional $70,000 for installation costs. In analyzing the feasibility of the investment, the CEO ordered a series of tests to determine whether the proposed equipment will realize the required costs savings or not for a total cost of $12,000. The cost of capital for this investment is estimated at 15% and the project is expected to increase net working capital by $55,000 at the beginning of the project. The marginal tax rate for this project is 35%. 5 18 21 Year 1 MACRS 20.00% 2 32.00% 3 19.20% 4 11.52% 5 11.52% 6 5.76% Question 11 (4 points) Listen Kennesaw Corp. produces baskets. It is deciding on adding a new product to its line- up. Which of the following are relevant cash flows for this project? 1 - Increased revenue from existing goods if these baskets are added to the lineup. 11 - Revenue from the new line of baskets. III - Money spent to date investigating the feasibility of the new project. IV - Cost of expanding the showroom to make space for the new baskets. 1) I and IV only 2) I and IV only 3) || and III only 4) I, II and IV only Question 12 (4 points) Listen The cost of capital is: 1) The weighted average return on its investments. 2) The weighted average of a firm's cost of equity and its after-tax cost of debt. 3) The weighted average pretax cost of debt and equity securities. 4) The weighted average dividend yield and capital gains yields