Q1

Costanza company is considering to buy a machine is as follows:

Investment	$500,000
Revenue	$200,000 it is expected, the revenue increase by 5% annually
Variable costs	$80,000
Fixed costs	$50,000 (50% is out of pocket cost)
Weighted average cost of capital	8%
Tax rate	40%

The machine is considered 10-year property for tax purposes. Salvage value at the end of year ten is expected to be $50,000.

The company plans to dispose of the property at the end of the fourth year. At that time, the machine estimated can be sold for $350,000.

Assume all cash flows occur at the end of the year. (Round to the nearest dollar.)

From the given information, the net present value at the end of year four is:

Please show the calculations as well.

250,000

300,000

251,600

238,270

237,360

Q2

Costanza company is considering to buy a machine is as follows:

Investment	$500,000
Revenue	$200,000
Variable costs	$80,000
Fixed costs	$50,000 (50% is out of pocket cost)
Weighted average cost of capital	8%
Tax rate	40%

The machine is considered 10-year property for tax purposes. Salvage value at the end of year ten is expected to be $50,000. Assume cash flows occur at the end of the year. (Round to the nearest dollar.)

From the given information, the total after-tax cash inflow for four years is: