Solve for both Part A and Part B: Determine the following: 1) Compute the net cash flow using straight line method of depreciation. 2) Using IRR-Internal rate of return method, should the new investment project be acknowledged or eliminated if the cost of capital comes about 6% per annum.

a) United, Inc. wishes to determine the relevant operating cash flows associated with the proposed purchase of a new piece of equipment having an installed cost of $10 million and falling into the 5-year MACRS asset class. The firms financial analyst estimated that the relevant time horizon for analysis is 6 years. She expects the revenues attributed to the equipment to be $15.8 million in the first year and to increase at 5% per year through year 6. Similarly she estimates all the expenses other than depreciation attributable to the equipment to total $12.2 million in the first year and to increase by 4% per year through year 6. She plans to ignore any cash flows after year 6. The firm has a marginal tax rate of 40% and its required return on the equipment investment is 13%. (Note: Round all cash flows calculations to the nearest $0.01 million.)

b) Now lets assume the following: A supervisor of a printing company finds the preliminary investment of printing machinery is $200000. The machinery will be devalued once in five years with scrap value of zero. He also estimates that increment in revenue or income from the new machinery will be $160000 per year. The addition in costs as an outcome from the new machinery on account of use of direct labor and materials, transportation, extra expense charges, constructing rent related with the new machinery would amount to $90000 every year. Marginal income tax for the industries is 20%