QUESTION $1$

What is the expected after$-$tax cash flow from selling a piece of equipment if TwoPlus purchases the equipment today for $$290,000,$ the tax rate is $20$ percent, the equipment is sold in $3$ years for $$70,000,$ and MACRS depreciation is used where the depreciation rates in years $1,2,3,4,$ and $5$ are $37\%,24\%,20\%,12\%,$ and $7\%,$ respectively?

$10$ points

QUESTION $2$

What is the net present value of the flier project, which is a $3-$year project where Dispersion would spread fliers all over Fairfax? The project would involve an initial investment in equipment of $$570,000$ today. To finance the project, Dispersion would borrow $$570,000.$ The firm would receive $$570,000$ from the bank today and would pay the bank $$640,000$ in $3$ years $($consisting of an interest payment of $$70,000$ and a principal payment of $$570,000).$ Cash flows from capital spending would be $$0$ in year $1,$ $$0$ in year $2,$ and $$184,000$ in year $3.$ Operating cash flows are expected to be $$215,000$ in year $1,-$$$60,000$ in year $2,$ and $$$$321,000$ in year $3.$ The cash flow effects from the change in net working capital are expected to be $$$$40,000$ at time $0$; $$30,000$ in year $1$; $-$$$10,000$ in year $2,$ and $$20,000$ in year $3.$ The tax rate is $15$ percent. The cost of capital is $5\mathrm{.}08$ percent and the interest rate on the loan would be $3\mathrm{.}94$ percent.