1. Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $679,000 that would be depreciated on a straight-line basis to zero over the 4-year life of the project. The equipment will have a market value of $183,000 at the end of the project. The project requires $53,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow will be $202,900 a year. What is the net present value of this project if the relevant discount rate is 13 percent and the tax rate is 34 percent?
2. Your grandparents would like to establish a trust fund that will pay you and your heirs $195,000 per year forever with the first payment 10 years from today. If the trust fund earns an annual return of 3.8 percent, how much must your grandparents deposit today?