1. Lowell Inc. is thinking about replacing an old computer with a new one. The new one will cost $1,000,000 and will have a life of FOUR years. The new computer qualifies as 5-year MACRS property.

   Years	1	2	3	4
   Depreciation rate	20%	32%	19%	12%

   It will probably be worth about $300,000 after FOUR years. The old computer is being depreciated at a rate of $100,000 per year. It will be completely written off in FOUR years, at that time it will have zero resale value. We can sell it now for $300,000 after taxes. The new machine will save us $200,000 per year in operating costs. The tax rate (federal plus state) is 25 percent and WACC is 8 percent. What is the TOTAL FREE CASH FLOW FOR YEAR 4?

   Free cash flow = Total Initial Investment + Total annual project CF + Total Salvage Value

   		462,500
   		422,500
   		482,500
   		442,500