Question 1. Harvest Table recently purchased an asset for $55,000 that will be used in a 7-year project. The asset is in the 5-year MACRS class. Using the MACRS table, calculate the depreciation expenses in the following years: Year 1 2 3 4 5 6 7 Depreciation expense that year, in dollars Question 2. Your business is considering a new project that would cost $100,000 and would bring $70,000 each year for the next 5 years. Before you decide to pursue it, you spend $10,000 on the marketing study to see if there is a demand for a new product. The marketing study concludes that there is a strong demand and you should pursue it. By pursuing it, you are losing an opportunity to pursue an alternative project with the NPV of $50,000, your taxes will increase by $5,000 beginning in Year 1, and your interest expense will increase by $400 beginning in Year 0. The tax rate is 21%. The discount rate is 12%. What is the cost of the project today? Hint: only focus on cash flows that are relevant. Solutions Answer