Question 24 (4 points) Listen Kennesaw Corp. is analyzing the purchase of a cost saving equipment. The equipment is expected to reduce energy expenses by $370,000 before tax per year, and it is expected to have a salvage value of $95,000 after four-years. This equipment will be used for four-years and depreciated using the five-year MACRS using the rates in the below table. The equipment will cost $630,000 to purchase and will require an additional $70,000 for installation costs. In analyzing the feasibility of the investment, the CEO ordered a series of tests to determine whether the proposed equipment will realize the required costs savings or not for a total cost of $12,000. The cost of capital for this investment is estimated at 15% and the project is expected to increase net working capital by $55,000 at the beginning of the project. The marginal tax rate for this project is 35%. Year1 MACRS 20.00% 2 3 4 32.00% 19,20% 11.52% 5 11.52% 6 5.76% The after-tax salvage value for this project is: 1) $99,652 2) $104,086 3) $108,663 4) $120,095 Question 25 (4 points) Listen A firm with 10% required rate of return has two possible investment projects. Project A will last 3 years, and project B will last 6 years. The cash flow projections for the two projects are: Year 0 1 2 3 Project "A" cash -100 60 50 40 flows Year Project "B" cash flows 0 -200 1 80 2 120 3 70 4 80 5 90 6 50 The NPVs of project A and B based on the Least common multiple of lives are respectively: 1) 45.39; 163.24 2) 68.40; 157.23 3) 72.44; 146.08 4) 76.84: 132.61