Problem 3: Capital Budgeting (20 Marks) Jupiter Corporation is planning to undertake a new project that is expected to have a 5-year economic life. The project will have an initial equipment cost of $150,000. Installation and shipping charges for the equipment are estimated at $20,000. The equipment will be depreciated straight line to zero over a five year period. A working capital investment of $20,000 is required immediately to undertake the project. The working capital will be recovered at the end of the project. The revenues from the project in year 1 are expected to be $70,000 and remains constant till the end of the project life. Operating costs exclusive of depreciation are estimated to be $17,000 in year 1. These costs are expected to remain constant till the end of the project life. The firm's marginal tax rate is 40%. The expected salvage value of the equipment at the end of year 5 is $25,000. If the firm's cost of capital is 15%, should the project be undertaken? Calculate the initial investment of Jupiter Corporation. (3 marks) B. Calculate the depreciation per year. (2 marks) C. Calculate the book value of the equipment after three years. (3 marks) D. What is the after-tax salvage value of the equipment at the end of year 5? (4 marks) What are the annual free cash flows for this project in the first four years? (4 marks) F. What is the NPV of this investment? Would you accept or reject this new investment? (4 marks) A