QUESTION 6: A company wants to update their operations by buying some new machinery and selling some old equipment. The new machinery will cost $100,000 and will be depreciated using 3-year MACRS (33%, 45%, 15%, 7%). At the end of the third year, the machinery is expected to be sold for $17,000.

The old equipment was bought three years ago for $60,000 and was being depreciated over four years using straight-line depreciation. It can be sold today for $15,000. If they do not buy the new machinery and replace the old equipment, then the old equipment is expected to be held for another three years at which point it will be worthless.

Net Working Capital will have to be increased today by $40,000, but that amount will be recovered at the end of the project in three year

Sales will be $100,000 for the next three years if they dont do the project and $150,000 if they do update their project, Additionally, COGS will fall from 70% of Sales if they dont do the project to Sales to 60% of Sales if they buy the new machinery. The tax rate is 40%. (Hint: You have to Calculate COGS if they dont do the project and if they do the project and then you will use the change in COGS. For Sales, you use the change in Sales

A. What is the Net Investment (Initial Cash Outflow or CF0) for this project?

a) $75,000 c) $155,000

b) $115,000 d) $185,000

B. What is the Operating Cash Flow in year two for this project?

a) 30,000 c) 45,000

b) 36,000 d) 60,000

C. What is the Terminal Value at the end of this project in three years (include everything in the end column, but do NOT include the operating cash flow in year 3)?

a) 23,000 c) 44,000

b) 36,000 d) 53,000

Please answer with explanation and correctly. I have answer sheet with me. wrong answer will give you a thumb down.