Manigault Industries is considering an expansion project. The proposed project would have a 4-year life along with the following features: The necessary equipment is priced at $90,000. The engineers require a cost of $3,000 to install the equipment and $5,000 to train employees to use the equipment The equipment will be depreciated using MACRS 3 year class over 4 years using the following depreciation rates: 33% (year 1), 45% (year 2), 15% (year 3) and 7% (year 4). If the project is undertaken, at t = 0 the company will need to increase its inventories by $50,000 and its accounts payable by $30,000. The company will realize an additional $500,000 in sales over each of the next four years. The companys operating costs (excluding depreciation) will equal $200,000 a year. The companys tax rate is 40%. At t = 4, the equipment will be sold for $30,000. The weighted average cost of capital WACC is 10%.

The net working capital (NWC) equals: *

A. $50,000

B. $30,000

C. $80,000

D. $20,000

E. None of the above

2. The base price of the equipment equals: *

A. $93,000

B. $98,000

C. $200,000

D. $500,000

E. None of the above

3. What is the net cost of the equipment for capital budgeting purposes? *

A. $113,000

B. $45,200

C. $30,000

D. $118,000

E. None of the above

4. The depreciation expense for the 1st year is: *

A. $30,000

B. $30,690

C. $32,340

D. $0

E. None of the above

5. The after-tax Cash Flow for the 1st year is: *

A. $500,000

B. $200,000

C. $192,936

D. $192,276

E. None of the above