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Question 1 (20 points): SIT's Computer department recently purchased 100 new sever machines with a total initial cost of $120,000, and with an estimated salvage value of $20,000 at the end of 3-year useful life. Using the straight-line method: a. Calculate the annual depreciation allowances. (10 points) b. Calculate the annual book values. (10 points) Question 2 (20 points): Fred's Fabrication, Inc. bought a 50-kilowatt gas turbine that costs $40,000. It is estimated that the machine will have a depreciated salvage value of $5,000 at the end of its 3-year useful life. Use the double-declining balance method: a. Calculate the annual depreciation allowances. (Please ignore the depreciation adjustment at this time) (8 points) b. Calculate the annual book values. (Please ignore the depreciation adjustment at this time) (8 points) c. What do you notice about the book value at the end of year 3? What does this mean? (2 + 2 points) Question 3 (20 points): At Year 0, Vermont wood manufactures Inc. purchased a light duty delivery truck for $32,000 that has a 7-year service life. The truck was place in service from Year 1. At the end of Year 7, it will be sold at a salvage value of $3000. The light duty delivery truck has been depreciated according to a 7 year MACRS property class. a. Calculate the annual depreciation allowances over 7 years. (8 points) b. Calculate the annual book values over 7 years. (8 points) c. Is there a capital gains or loss and if so, how much is the gain / loss? (2 + 2 points) Question 4 (40 points): Honda Motor Co. decides to upgrade a new assembly line to increase productivity. This upgrade requires an initial investment of $3,200,000 and will generate $850,000 revenue in year 1 of operation. The system will incur $250,000 in maintenance expenses in the first year. The investment cost of all the equipment necessary for upgrading is classified as a 5- year MACRS property for depreciation purposes. The expected salvage value of all the equipment is $200,000 at the end of the project life. The firm pays taxes at a rate of 25% and has a MARR of 18%. The assembly lines have a 6-year life. Revenues for operation will increase at 5% each year and expenses will increase at 3% each year. A loan is to be taken out for 28% of the initial investment amount. The loan will be repaid over the project life in yearly payments, at an annual interest rate of 15%. Calculate the following: a. Determine the allowed depreciation amounts (6 points) b. Calculate the repayment schedule of the loan (6 points) c. Calculate the Gains/Losses associated with Asset Disposal (2 points) d. Create the Income Statement (10 points) e. Develop a Cash Flow Star (10 points) f. Is this project justifiable at a MARR of 18%? Calculate the NPV (2 points) Calculate IRR (2 points) State your conclusions. (2 points)