QUESTION

1 Use the following information to answer the questions in this quiz. Please show your work by submitting a Word, Excel, or JPEG file in the "Project 2 Drop Box".

INFORMATION OLD MACHINE: Original Purchase Price $ 550,000.00 Original Life 10 YEARS Remaining Life 5 YEARS Straight line depreciation in use Salvage Value $ 50,000.00 Current Fair Market Value $ 260,000.00

INFORMATION NEW MACHINE A: Purchase Price $895,000.00 Estimated Life 5 YEARS Use Straight Line Depreciation Method Estimated Salvage Value $ 10,000.00

Estimated Net Operating Cash Flow Increase/Decrease (Prior to Depreciation and Taxes) End of Year 1 $ 100,000.00 End of Year 2 $ 150,000.00 End of Year 3 $ 250,000.00 End of Year 4 $ 200,000.00 End of Year 5 $ 200,000.00

ASSUMPTIONS: Tax Rate 40% WACC Rate 7%

If you keep the old machine, the NPV is: B. 117,653

QUESTION 2 If you sell the old machine and buy new machine A, the NPV will be: A -4,995, B -5,859, C 2,907